FINANCIAL INFORMATION <TABLE> <S> <C> THE COMPANY............................ 1 Global Consumer...................... 1 Global Corporate and Investment Bank............................... 2 Global Investment Management and Private Banking.................... 3 Associates........................... 4 Investment Activities................ 5 Corporate/Other...................... 5 FIVE-YEAR SUMMARY OF SELECTED FINANCIAL DATA................................. 6 MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS........................... 8 Results of Operations................ 10 GLOBAL CONSUMER........................ 13 Banking/Lending...................... 14 Citibanking North America.......... 14 Mortgage Banking................... 15 North America Cards................ 17 CitiFinancial...................... 18 Insurance............................ 19 Travelers Life and Annuity......... 19 Primerica Financial Services....... 21 Personal Lines..................... 22 International Consumer............... 24 Western Europe..................... 24 Japan.............................. 25 Asia............................... 26 Latin America...................... 27 Central & Eastern Europe, Middle East & Africa.................... 28 e-Consumer........................... 29 Other Consumer....................... 30 Consumer Portfolio Review............ 30 Global Consumer Outlook.............. 32 GLOBAL CORPORATE AND INVESTMENT BANK... 36 Salomon Smith Barney and The Global Relationship Bank.................. 37 Emerging Markets Corporate Banking... 39 Commercial Lines..................... 41 Commercial Portfolio Review.......... 48 Global Corporate and Investment Bank Outlook............................ 50 GLOBAL INVESTMENT MANAGEMENT AND PRIVATE BANKING...................... 52 Citigroup Asset Management........... 53 The Citigroup Private Bank........... 54 Global Investment Management and Private Banking Outlook............ 55 ASSOCIATES............................. 56 Associates Outlook................... 58 INVESTMENT ACTIVITIES.................. 58 CORPORATE/OTHER........................ 59 FUTURE APPLICATION OF ACCOUNTING STANDARDS............................ 59 FORWARD-LOOKING STATEMENTS............. 59 MANAGING GLOBAL RISK................... 60 The Credit Risk Management Process... 61 The Market Risk Management Process... 62 Management of Cross-Border Risk...... 66 LIQUIDITY AND CAPITAL RESOURCES........ 67 REPORT OF MANAGEMENT................... 76 INDEPENDENT AUDITORS' REPORT........... 77 CONSOLIDATED FINANCIAL STATEMENTS...... 78 Consolidated Statement of Income..... 78 Consolidated Statement of Financial Position........................... 79 Consolidated Statement of Changes in Stockholders' Equity............... 80 Consolidated Statement of Cash Flows.............................. 81 NOTES TO CONSOLIDATED FINANCIAL STATEMENTS........................... 82 FINANCIAL DATA SUPPLEMENT.............. 150 Average Balances and Interest Rates, Taxable Equivalent Basis........... 150 Analysis of Changes in Net Interest Revenue............................ 153 Ratios............................... 155 Foregone Interest Revenue on Loans... 155 Loan Maturities and Sensitivity to Changes in Interest Rates.......... 156 Loans Outstanding.................... 157 Cash-Basis, Renegotiated, and Past Due Loans.......................... 158 Other Real Estate Owned and Other Repossessed Assets................. 159 Details of Credit Loss Experience.... 160 Average Deposit Liabilities in Offices Outside the U.S............ 161 Maturity Profile of Time Deposits ($100,000 or more) in U.S. Offices............................ 161 Short-Term and Other Borrowings...... 161 10-K CROSS-REFERENCE INDEX............. 175 CITIGROUP BOARD OF DIRECTORS........... 180 </TABLE> i
THE COMPANY Citigroup Inc. (Citigroup and, together with its subsidiaries, the Company) is a diversified financial holding company whose businesses provide a broad range of financial services to consumer and corporate customers in over 100 countries and territories. On November 30, 2000, Citigroup, completed its acquisition of Associates First Capital Corporation (Associates) in a transaction accounted for as a pooling of interests. The acquisition was consummated through a merger of a subsidiary of Citigroup with and into Associates (with Associates as the surviving corporation) pursuant to which each share of Associates common stock became a right to receive .7334 of a share of Citigroup's common stock (534.5 million shares). Subsequent to the acquisition, Associates was contributed to and became a wholly owned subsidiary of Citicorp and Citicorp issued a full and unconditional guarantee of the outstanding long-term debt securities and commercial paper of Associates and Associates Corporation of North America (ACONA), a subsidiary of Associates. Associates' and ACONA's debt securities and commercial paper will no longer be separately rated. On October 8, 1998, Citicorp merged with and into a newly formed, wholly owned subsidiary of Travelers Group Inc. (TRV). Following the merger, TRV changed its name to Citigroup Inc. (Citigroup). The merger was accounted for under the pooling of interests method. During April 2000, The Travelers Insurance Group Inc. (TIGI), an indirect wholly owned subsidiary of the Company, completed a cash tender offer to purchase all of the outstanding shares of Travelers Property Casualty Corp. (TPC) not previously owned. The Company's activities are conducted through Global Consumer, Global Corporate and Investment Bank, Global Investment Management and Private Banking, Associates, and Investment Activities. GLOBAL CONSUMER Global Consumer delivers a wide array of banking, lending, and investment services, including the issuance of credit and charge cards, and personal insurance products in 51 countries and territories. Global Consumer creates products and platforms to meet the expanding needs of the world's growing middle class. CITIBANKING NORTH AMERICA delivers banking, lending, and investment services to customers through Citibank's 367 branches and through electronic delivery systems. Through its MORTGAGE BANKING unit, Global Consumer originates and services mortgages and student loans for customers across the United States. The NORTH AMERICA CARDS unit offers products such as MasterCard-Registered Trademark-, VISA-Registered Trademark-, and Diners Club across North America. As of December 31, 2000, the North America bankcards business had 44 million accounts and $88 billion of managed receivables, which represented approximately 17% of the U.S. credit card receivables market. New accounts are primarily acquired through direct marketing efforts, over the Internet, and through portfolio acquisitions. The CITIFINANCIAL unit of Global Consumer provides community-based lending services through its branch network system. As of December 31, 2000, CitiFinancial maintained 1,270 loan offices in the U.S. and Canada. Loans to consumers include real estate-secured loans, unsecured and partially secured personal loans, and loans to finance consumer goods purchases. The INSURANCE units of Global Consumer through Travelers Life and Annuity offer individual annuity, group annuity, individual life insurance and corporate owned life insurance (COLI). The individual products include fixed and variable deferred annuities, payout annuities, and term and universal life insurance. These products are primarily distributed through Citigroup businesses and a 1
nationwide network of independent agents. The COLI product is a variable universal life product distributed through independent specialty brokers. The group annuity products offered include institutional pension products, including guaranteed investment contracts, payout annuities, structured finance, and group annuities to U.S. employer-sponsored retirement and savings plans through direct sales and various intermediaries. The business operations of Primerica Financial Services (Primerica) involve the sale in North America of life insurance and other products manufactured by its affiliates, including Smith Barney mutual funds, CitiFinancial mortgages and personal loans and The Travelers Insurance Company (TIC) annuity products. The Primerica sales force is composed of over 100,000 independent representatives. A great majority of the sales force works on a part-time basis. Through Travelers Property Casualty Corp. (TPC), Global Consumer writes virtually all types of property and casualty insurance covering personal risks. The Personal Lines unit of TPC had approximately 5.4 million policies in force at December 31, 2000. The primary coverages are personal automobile and homeowners insurance sold to individuals, and are distributed through approximately 5,300 independent agencies located throughout the United States. Personal Lines also uses alternative distribution channels, including sponsoring organizations such as employee and affinity groups, and joint marketing arrangements with other insurers, and are marketed through other Citigroup businesses. The INTERNATIONAL unit of Global Consumer provides full-service banking and lending, including credit and charge cards, and investment services in the developed markets of Western Europe and Japan, and in the emerging markets of Asia, Latin America, and Central & Eastern Europe, Middle East & Africa, through approximately 1,000 branches in 49 countries and territories. In these markets, Global Consumer has approximately 12 million credit and charge card member accounts. E-CONSUMER is the business responsible for developing and implementing Global Consumer's Internet financial services products and e-commerce solutions. e-Consumer's mission is to build and deliver new forms of financial services that meet the changing needs of customers and to facilitate all aspects of e-commerce as it grows with the new digital economy. During 2000, e-Consumer launched Citibank Online, an enhanced Internet banking service, C2it, a person-to-anywhere (P2A) online payment system, and MyCiti, an online account aggregation site, and entered into an online strategic alliance with America Online. GLOBAL CORPORATE AND INVESTMENT BANK Global Corporate and Investment Bank provides corporations, governments, institutions and investors in 100 countries and territories with a broad range of financial products and services, including investment advice, financial planning and retail brokerage services, banking and financial services and commercial insurance products. Global Corporate and Investment Bank, through SALOMON SMITH BARNEY (SSB), delivers investment banking services that encompass a full range of global capital market activities, including the underwriting and distribution of fixed income and equity securities for United States and foreign corporations and for state, local and other governmental and government-sponsored authorities. SSB also provides capital raising, advisory, research and other brokerage services to its customers, acts as a market-maker and executes securities and commodities futures brokerage transactions on all major United States and international exchanges on behalf of customers and for its own account. SSB trades for its own account in various markets throughout the world and uses many different strategies involving a broad spectrum of financial instruments and derivative products. THE GLOBAL RELATIONSHIP BANK (GRB) provides banking and financial services to large multinational companies. A dedicated relationship team serves each parent company and its subsidiaries everywhere they operate. Product offerings are determined by the demands of these sophisticated customers. Core products include cash 2
management, foreign exchange, structured products, derivatives, securities custody, trade services and loan products. On May 1, 2000, SSB completed the acquisition of the global investment banking business and related assets of Schroders PLC, including all corporate finance, financial markets and securities activities. The combined European operations of SSB are now known as Schroder Salomon Smith Barney. During the second quarter of 2000, GRB strengthened its position in the U.S. leasing market through the purchase of Copelco, a prominent vendor leasing company. Global Corporate and Investment Bank is a major participant in foreign exchange and in the over-the-counter (OTC) market for derivative instruments involving a wide range of products, including interest rate, equity and currency swaps, caps and floors, options, warrants and other derivative products. It also creates and sells various types of structured securities. Citibank has a long-standing presence in emerging markets, which include all locations outside North America, Western Europe and Japan. Citigroup's EMERGING MARKETS CORPORATE BANKING (EM Corporate) business offers a wide array of banking and financial services products and services that help multinational and local companies fulfill their financial goals or needs. Citigroup's Embedded Bank and Emerging Local Corporate strategies focus on its plans to gain market share in selected emerging market countries and to establish Citibank as a local bank as well as a leading international bank. Citibank typically enters a country to serve global customers, providing them with cash management, trade services, short-term loans and foreign-exchange services. Then, Citibank offers project finance, fixed-income issuance and trading and, later, introduces securities custody, loan syndications and derivatives services. Finally, as a brand image is established and services for locally headquartered companies become significant, consumer banking services may be offered. In June 2000, EM Corporate completed the acquisition of a majority interest in Bank Handlowy, Poland's largest corporate bank. SSB investment bankers and GRB and Emerging Markets corporate relationship managers also jointly market to their customers. SSB's investment banking products are sold to corporate relationships in GRB and EM Corporate. In addition, Citibank's capabilities in foreign exchange, lending and liquidity and transaction services are sold to SSB's customers. TPC's COMMERCIAL LINES unit offers a broad array of property and casualty insurance and insurance-related services, which it distributes through approximately 5,500 brokers and independent agencies located throughout the United States. TPC is the third largest writer of commercial lines insurance in the U.S. based on 1999 direct written premiums published by A.M. Best Company. Commercial Lines is organized into four marketing and underwriting groups that are designed to focus on a particular client base or industry segment to provide products and services that specifically address customers' needs: National Accounts, primarily serving large national corporations; Commercial Accounts, serving mid-size businesses; Select Accounts, serving small businesses; and Specialty Accounts, providing a variety of specialty coverages. Environmental, asbestos and other cumulative injury claims are segregated from other claims and are handled separately by TPC's Special Liability Group, a special unit staffed by dedicated legal, claim, finance, and engineering professionals. GLOBAL INVESTMENT MANAGEMENT AND PRIVATE BANKING Global Investment Management and Private Banking is comprised of CITIGROUP ASSET MANAGEMENT and THE CITIGROUP PRIVATE BANK. Citigroup Asset Management, formerly known as the SSB Citi Asset Management Group and Global Retirement Services, includes Smith Barney Asset Management, Salomon Brothers Asset Management, and Citibank Asset Management along with the pension administration businesses of Global Retirement Services. These businesses offer a broad range of asset management products and services from global investment centers around the world, including mutual 3
funds, closed-end funds, managed accounts, unit investment trusts, variable annuities, pension administration and personalized wealth management services to institutional, high net worth and retail clients. Clients include private and public retirement plans, endowments, foundations, banks, central banks, insurance companies, other corporations, government agencies and high net worth and other individuals. Client relationships may be introduced through the cross marketing and distribution channels within Citigroup, through Citigroup Asset Management's own sales force or through independent sources. The Citigroup Private Bank provides personalized wealth management services for high net worth clients through more than 90 offices in 32 countries and territories, generating fee and interest income from investment funds management and customer trading activity, trust and fiduciary services, custody services and banking and lending activities. Its Relationship Managers and Product Specialists use their knowledge about their clients' individual needs and goals to bring them an array of personal wealth management services. ASSOCIATES Associates, which provides finance, leasing, insurance and related services to individual consumers and businesses in the United States and internationally, is organized into five primary business units: U.S. credit card, U.S. consumer branch, U.S. home equity, commercial and international finance. Associates' U.S. credit card business offers private label retail credit card and revolving programs (Private Label Cards) and VISA-Registered Trademark- and MasterCard-Registered Trademark- retail bankcard credit card products (Retail Bankcards) to customers throughout the United States. Various credit-related and other insurance products are also provided, including credit life, credit accident and health, accidental death and dismemberment, involuntary unemployment and personal property insurance. In addition, the U.S. credit card business provides emergency roadside assistance and auto club services. Associates' U.S. consumer finance business offers a variety of consumer finance and insurance products and services to customers throughout the United States. Finance products and services offered by this business include home equity loans, personal loans, automobile financing and retail sales finance. In addition, Associates, through certain subsidiaries and third parties, makes available various credit-related and other insurance products to its U.S. consumer finance customers, including credit life, credit accident and health, involuntary unemployment, personal property insurance and other non-credit products. Associates' commercial business offers a variety of commercial finance and insurance products to customers in the United States and Canada. Finance products and services offered by this business in the United States and Canada include retail and wholesale financing and leasing products and services for heavy-duty (Class 8) and medium-duty (Classes 3 through 7) trucks and truck trailers and construction, material handling and other industrial and communications equipment. Associates engages in a number of other commercial activities, including auto fleet leasing and fleet management services, government guaranteed lending, employee relocation services, truck trailer rental services, warehouse lending and public finance. Associates, through certain subsidiaries and third parties, also makes available various credit-related and other insurance products to its commercial segment customers and other customers, including commercial auto and dealers' open lot physical damage, credit life and motor truck cargo insurance, and commercial and public auto liability insurance. Associates also offers specialty lines including general liability, directors and officers and errors and omission insurance, and personal lines including homeowner and recreational vehicle insurance. Associates' international finance business offers a variety of consumer finance products and services to customers in Japan, Canada, the United Kingdom, Puerto Rico, Sweden, Hong Kong, Spain, 4
India, Mexico, Taiwan, Ireland, the Philippines and Norway. Commercial financing products are also offered in the United Kingdom, Hong Kong, Puerto Rico, France, Mexico, Japan, India and Spain. Associates, through certain subsidiaries and other third parties, also offers various credit-related and other insurance products to its customers, including credit life, credit accident and health, accidental death and dismemberment, involuntary unemployment and personal property insurance. The characteristics of the international finance business' customers are similar to those of their counterparts in the U.S. consumer finance, U.S. credit card and commercial business. INVESTMENT ACTIVITIES The Company's Investment Activities segment consists primarily of its venture capital activities, realized investment gains and losses related to certain corporate and insurance related investments, and the results of certain investments in countries that refinanced debt under the 1989 Brady Plan or plans of a similar nature. CORPORATE/OTHER Corporate/Other includes net corporate treasury results, corporate staff and other corporate expenses, certain intersegment eliminations, and the remainder of Internet-related development activities (e-Citi) not allocated to the individual businesses. The periodic reports of Citicorp, Salomon Smith Barney Holdings Inc., TPC, The Student Loan Corporation (STU), TIC, and Travelers Life and Annuity Company (TLAC), subsidiaries of the Company that make filings pursuant to the Securities Exchange Act of 1934, as amended (the Exchange Act), provide additional business and financial information concerning those companies and their consolidated subsidiaries. The principal executive offices of the Company are located at 399 Park Avenue, New York, New York 10043; telephone number 212-559-1000. 5
FIVE-YEAR SUMMARY OF SELECTED FINANCIAL DATA(1) <TABLE> <CAPTION> In Millions of Dollars, Except Per Share Amounts 2000 1999 1998 1997 1996 -------- -------- -------- -------- -------- <S> <C> <C> <C> <C> <C> TOTAL REVENUES.............................................. $111,826 $ 94,396 $ 85,925 $ 80,530 $ 72,192 Total revenues, net of interest expense..................... 75,188 65,722 55,233 53,231 48,400 Benefits, claims, and credit losses......................... 15,486 13,880 12,788 11,455 10,835 Operating expenses(2)....................................... 38,559 33,691 31,360 29,471 25,484 Income from continuing operations(2)........................ 13,519 11,370 6,950 7,682 7,900 Discontinued operations..................................... -- -- -- -- (334) Cumulative effect of accounting changes(3).................. -- (127) -- -- -- -------- -------- -------- -------- -------- NET INCOME.................................................. $ 13,519 $ 11,243 $ 6,950 $ 7,682 $ 7,566 ======== ======== ======== ======== ======== EARNINGS PER SHARE(4) Basic earnings per share: Income from continuing operations......................... $ 2.69 $ 2.26 $ 1.35 $ 1.48 $ 1.50 Net income................................................ 2.69 2.23 1.35 1.48 1.43 Diluted earnings per share: Income from continuing operations......................... 2.62 2.19 1.31 1.42 1.44 Net income................................................ 2.62 2.17 1.31 1.42 1.38 Dividends declared per common share(4)(5)................... 0.520 0.405 0.277 0.200 0.150 -------- -------- -------- -------- -------- AT DECEMBER 31, Total assets................................................ $902,210 $795,584 $740,336 $755,167 $675,738 Total deposits.............................................. 300,586 261,573 229,413 199,867 185,516 Long-term debt.............................................. 111,778 88,481 86,250 75,605 67,266 Mandatorily redeemable securities of subsidiary trusts...... 4,920 4,920 4,320 2,995 2,545 Redeemable preferred stock.................................. -- -- 140 280 420 Common stockholders' equity................................. 64,461 56,395 48,761 44,610 40,529 Total stockholders' equity.................................. 66,206 58,290 51,035 47,956 43,732 -------- -------- -------- -------- -------- Ratio of earnings to fixed charges and preferred stock dividends................................................. 1.56X 1.61x 1.34x 1.42x 1.49x Return on average common stockholders' equity(6)............ 22.4% 21.5% 14.4% 17.5% 19.1% Common stockholders' equity to assets....................... 7.14% 7.09% 6.59% 5.91% 6.00% Total stockholders' equity to assets........................ 7.34% 7.33% 6.89% 6.35% 6.47% ======== ======== ======== ======== ======== INCOME ANALYSIS(7) Total revenues, net of interest expense..................... $ 75,188 $ 65,722 $ 55,233 $ 53,231 $ 48,400 Effect of securitization activities......................... 2,459 2,707 2,364 1,734 1,395 Associates Housing Finance charge(8)........................ 47 -- -- -- -- -------- -------- -------- -------- -------- ADJUSTED REVENUES, NET OF INTEREST EXPENSE.................. 77,694 68,429 57,597 54,965 49,795 -------- -------- -------- -------- -------- ADJUSTED OPERATING EXPENSES(9).............................. 37,775 33,744 30,565 27,753 25,498 -------- -------- -------- -------- -------- Benefits, claims, and credit losses......................... 15,486 13,880 12,788 11,455 10,835 Effect of securitization activities......................... 2,459 2,707 2,364 1,734 1,395 Associates Housing Finance charge(8)........................ (40) -- -- -- -- Acquisition-related costs................................... -- -- -- -- (541) -------- -------- -------- -------- -------- ADJUSTED BENEFITS, CLAIMS, AND CREDIT COSTS................. 17,905 16,587 15,152 13,189 11,689 -------- -------- -------- -------- -------- Restructuring-related items and merger-related costs........ (759) 53 (795) (1,718) -- Associates Housing Finance charge(8)........................ (112) -- -- -- -- Acquisition-related costs................................... -- -- -- -- (650) Operating loss from discontinued operations................. -- -- -- -- 123 Gain on sale of stock by subsidiary......................... -- -- -- -- 363 -------- -------- -------- -------- -------- INCOME FROM CONTINUING OPERATIONS BEFORE TAXES AND MINORITY INTEREST.................................................. 21,143 18,151 11,085 12,305 12,444 -------- -------- -------- -------- -------- Provision for income taxes.................................. 7,525 6,530 3,907 4,411 4,497 Minority interest, net of income taxes...................... 99 251 228 212 47 -------- -------- -------- -------- -------- INCOME FROM CONTINUING OPERATIONS........................... 13,519 11,370 6,950 7,682 7,900 Discontinued operations, net of tax......................... -- -- -- -- (334) Cumulative effect of accounting changes(3).................. -- (127) -- -- -- -------- -------- -------- -------- -------- NET INCOME.................................................. $ 13,519 $ 11,243 $ 6,950 $ 7,682 $ 7,566 ======== ======== ======== ======== ======== </TABLE> - ------------------------------ (1) All periods have been restated to reflect the acquisition of Associates on November 30, 2000. See Note 2 of Notes to Consolidated Financial Statements. (2) The years ended December 31, 2000, 1999, 1998 and 1997 include net restructuring-related items (and in 2000 and 1998 merger-related costs) of $759 million ($550 million after-tax), ($53) million (($25) million after-tax), $795 million ($535 million after-tax) and $1,718 million ($1,046 million after-tax), respectively. See Note 15 of Notes to Consolidated Financial Statements. 6
(3) Accounting changes include the adoption of Statement of Position (SOP) 97-3, "Accounting by Insurance and Other Enterprises for Insurance-Related Assessments" of ($135) million; SOP 98-7, "Deposit Accounting: Accounting for Insurance and Reinsurance Contracts That Do Not Transfer Insurance Risk" of $23 million; and SOP 98-5, "Reporting on the Costs of Start-Up Activities" of ($15) million. See Note 1 of Notes to Consolidated Financial Statements. (4) All amounts have been adjusted to reflect stock splits. (5) Amounts represent Citigroup's historical dividends per common share. (6) The return on average common stockholders' equity is calculated using net income after deducting preferred stock dividend requirements. (7) The income analysis reconciles amounts shown in the Consolidated Statement of Income on page 78 to the basis presented in the Management's Discussion and Analysis of Financial Condition and Results of Operations section. (8) In January 2000, Associates discontinued the loan origination operations of its Housing Finance unit. (9) Excludes restructuring-related items and merger-related costs, discontinuation of Associates Housing Finance loan originations in 2000, and in 1996, operating loss from discontinued operations and acquisition-related costs. 7
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS ACQUISITION OF ASSOCIATES On November 30, 2000, Citigroup completed its acquisition of Associates. The consolidated financial statements give retroactive effect to the acquisition in a transaction accounted for as a pooling of interests, with all periods presented as if Citigroup and Associates had always been combined. Certain reclassifications and adjustments have been recorded to conform the accounting policies and presentations of Citigroup and Associates. MANAGED BASIS REPORTING The discussion that follows includes amounts reported in the historical financial statements (owned basis) adjusted to include certain effects of securitization activity, receivables held for securitization, and receivables sold with servicing retained (managed basis). On an owned basis, for securitized receivables, amounts that would otherwise be reported as net interest revenue, as fee and commission revenue, and as credit losses on loans are instead reported as fee and commission revenue (for servicing fees) and as other revenue (for the remaining cash flows to which Citigroup is entitled, which are net of credit losses). Because credit losses are a component of these cash flows, Citigroup's revenues over the terms of these transactions may vary depending upon the credit performance of the securitized receivables. However, Citigroup's exposure to credit losses on the securitized receivables is contractually limited to these cash flows. Additionally, the net earnings on retained securitization interests and receivables held for securitization, as well as gains from subsequent sales in revolving securitization structures are included in fees and commissions in the consolidated statement of income. On a managed basis, these earnings are reclassified and presented as if the receivables had neither been held for securitization nor sold. 8
BUSINESS FOCUS The table below shows the core income (loss) for each of Citigroup's businesses for the three years ended December 31: <TABLE> <CAPTION> In Millions of Dollars, Except Per Share Data 2000 1999 1998 -------- -------- -------- <S> <C> <C> <C> GLOBAL CONSUMER Citibanking North America................................... $ 566 $ 398 $ 114 Mortgage Banking............................................ 272 225 206 North America Cards......................................... 1,381 1,182 806 CitiFinancial............................................... 481 388 221 ------- ------- ------ Total Banking/Lending..................................... 2,700 2,193 1,347 ------- ------- ------ Travelers Life and Annuity.................................. 777 623 493 Primerica Financial Services................................ 492 452 400 Personal Lines.............................................. 311 279 319 ------- ------- ------ Total Insurance........................................... 1,580 1,354 1,212 ------- ------- ------ Western Europe.............................................. 345 275 211 Japan....................................................... 139 87 66 Asia...................................................... 563 356 317 Latin America............................................. 208 222 149 Central & Eastern Europe, Middle East and Africa.......... 59 46 18 ------- ------- ------ Total Emerging Markets Consumer Banking................... 830 624 484 ------- ------- ------ Total International....................................... 1,314 986 761 ------- ------- ------ e-Consumer.................................................. (202) (111) (75) Other....................................................... (98) (75) (67) ------- ------- ------ TOTAL GLOBAL CONSUMER....................................... 5,294 4,347 3,178 ------- ------- ------ GLOBAL CORPORATE AND INVESTMENT BANK Salomon Smith Barney and The Global Relationship Bank....... 3,688 2,989 861 Emerging Markets Corporate Banking.......................... 1,610 1,162 762 Commercial Lines............................................ 1,072 845 723 ------- ------- ------ TOTAL GLOBAL CORPORATE AND INVESTMENT BANK.................. 6,370 4,996 2,346 ------- ------- ------ GLOBAL INVESTMENT MANAGEMENT AND PRIVATE BANKING............ Citigroup Asset Management.................................. 361 328 265 The Citigroup Private Bank.................................. 324 269 244 ------- ------- ------ TOTAL GLOBAL INVESTMENT MANAGEMENT AND PRIVATE BANKING...... 685 597 509 ------- ------- ------ ASSOCIATES.................................................. 1,381 1,402 1,143 INVESTMENT ACTIVITIES....................................... 1,363 658 832 ------- ------- ------ Corporate/Other............................................. (888) (605) (456) e-Citi...................................................... (65) (50) (67) ------- ------- ------ TOTAL CORPORATE/OTHER....................................... (953) (655) (523) ------- ------- ------ CORE INCOME................................................. 14,140 11,345 7,485 Restructuring-related items and merger-related costs, after-tax................................................. (550) 25 (535) Associates Housing Finance charge, after-tax................ (71) -- -- Cumulative effect of accounting changes..................... -- (127) -- ------- ------- ------ NET INCOME.................................................. $13,519 $11,243 $6,950 ======= ======= ====== DILUTED EARNINGS PER SHARE Core income................................................. $ 2.74 $ 2.19 $ 1.42 Net income.................................................. $ 2.62 $ 2.17 $ 1.31 ======= ======= ====== </TABLE> 9
RESULTS OF OPERATIONS INCOME AND EARNINGS PER SHARE Citigroup reported 2000 core income of $14.140 billion or $2.74 per diluted common share, both up 25% from $11.345 billion or $2.19 in 1999. Core income in 2000 excluded $550 million in after-tax restructuring-related items and merger-related costs, and $71 million (after-tax) related to the discontinuation of Associates' housing finance loan origination operations. Core income in 1999 excluded a release of $25 million for after-tax restructuring-related items and an after-tax charge of $127 million reflecting the cumulative effect of adopting several new accounting standards as described in Note 1 of Notes to the Consolidated Financial Statements. Net income was $13.519 billion or $2.62 per diluted share, up 20% and 21%, respectively, from $11.243 billion or $2.17 in 1999. Citigroup's 1999 core income was up $3.860 billion or 52% from 1998. Net income in 1999 was up $4.293 billion or 62% from 1998. Core income return on common equity was 23.5% in 2000 compared to 21.7% for 1999 and 15.2% for 1998. Core income growth of $2.8 billion or 25% in 2000 was led by Global Corporate and Investment Bank which improved $1.374 billion or 28%. Global Consumer increased $947 million or 22%, Investment Activities were up $705 million or 107%, Global Investment Management and Private Banking improved $88 million or 15%, while Associates core income declined $21 million. Core income growth of $3.860 billion or 52% in 1999, was led by increases in Global Corporate and Investment Bank of $2.650 billion or 113%, as well as Global Consumer of $1.169 billion or 37%, Associates of $259 million or 23%, and Global Investment Management and Private Banking of $88 million or 17%. Partially offsetting this was a $174 million or 21% decrease in Investment Activities. REVENUES, NET OF INTEREST EXPENSE Adjusted revenues, net of interest expense of $77.7 billion in 2000 were up $9.3 billion or 14% from 1999. Revenues in 1999 were up $10.8 billion or 19% from 1998. Global Corporate and Investment Bank revenues of $32.1 billion in 2000 were up $4.6 billion or 17% from 1999, led by an increase of $3.4 billion or 20% in SSB & GRB, driven by double-digit revenue growth across most businesses. EM Corporate was up $731 million or 17%, while Commercial Lines was up $435 million or 7%. In 1999, Global Corporate and Investment Bank revenues of $27.5 billion were up $5.1 billion or 23% from 1998, principally reflecting an increase in SSB & GRB of $4.6 billion or 37% to $16.9 billion, driven by an increase in principal transactions revenues due to the absence of economic turmoil that existed in 1998 along with strong 1999 results. EM Corporate's 1999 revenues increased by 20% from 1998 to $4.3 billion, while Commercial Lines was down 3% to $6.3 billion. Global Consumer revenues reflected strong performance across most businesses in 2000 and were up $2.0 billion or 7% from 1999 to $30.4 billion. The Global Consumer revenue growth was led by an $829 million or 7% increase in Banking/Lending, a $781 million or 8% increase in Insurance, and a $477 million or 7% increase in International. Global Consumer revenues in 1999 increased $3.3 billion or 13% from 1998 to $28.4 billion, led by Banking/Lending up $1.5 billion or 13%, and growth in the International businesses, up $971 million or 17%. Global Investment Management and Private Banking revenues of $3.3 billion grew $593 million or 22% in 2000, and revenues of $2.7 billion grew $302 million or 13% in 1999, reflecting continued growth in assets under management and business volumes for both years and in 2000 the impact of acquisitions in Citigroup Asset Management. Associates revenues in 2000 were up $1.4 billion or 16% to $10.3 billion, and in 1999 were up $2.5 billion or 38% from 1998. Investment Activities revenues in 2000 increased $1.2 billion or 106%, primarily reflecting increases in venture capital results and gains on the exchange of certain Latin 10
American bonds, partially offset by repositioning losses in the insurance-related investments. Investment Activities revenues in 1999 decreased $233 million or 18%, primarily reflecting declines in realized gains, partially offset by venture capital results and realized investment gains on certain corporate-related investments. SELECTED REVENUE ITEMS Net interest revenue as calculated from the Consolidated Statement of Income was $28.3 billion in 2000, up $2.0 billion or 8% from 1999, which was up $2.5 billion or 10% from 1998, reflecting business volume growth in most markets and acquisitions in Global Corporate & Investment Bank, Global Consumer and Associates. Net interest revenue, adjusted for the effect of securitization activity, of $34.6 billion was up $2.5 billion or 8% in 2000 and $2.2 billion or 7% in 1999. Total commissions, asset management and administration fees, and other fee revenues of $21.7 billion were up $4.3 billion or 25% in 2000 and $2.7 billion or 18% in 1999, primarily as a result of volume-related growth, investment banking fees, assets under fee-based management, and the impact of acquisitions. Insurance premiums of $12.4 billion in 2000 were up $925 million or 8%, and were up $1.2 billion or 11% in 1999, reflecting strong growth in Travelers Life & Annuity in both 2000 and 1999, and Commercial Lines in 2000. Principal transactions revenues increased to $6.0 billion in 2000, up from $5.2 billion in 1999 and $1.8 billion in 1998, reflecting strong results in SSB & GRB. Realized gains from sales of investments of $806 million in 2000 were up from $541 million in 1999, but were down from $841 million in 1998. The increase in 2000 resulted from gains on the exchange of certain Latin American bonds, partially offset by losses in insurance-related investments. Other income of $6.0 billion increased $1.2 billion from 1999, which was up $1.1 billion from 1998. The 2000 improvement primarily reflected higher venture capital results offset by lower securitization activities. OPERATING EXPENSES Adjusted operating expenses, which exclude restructuring and merger-related costs, grew $4.0 billion or 12% to $37.8 billion in 2000, and increased $3.2 billion or 10% from 1998 to 1999. Global Corporate and Investment Bank expenses were up 16% in 2000, primarily attributable to production-related compensation and acquisitions at SSB & GRB, partially offset by lower year 2000 and European Economic Monetary Union (EMU) expenses. EM Corporate expenses rose $208 million or 10% in 2000, as a result of the acquisition of Bank Handlowy, investment spending in selected countries and other volume related increases. Expenses increased in Global Consumer by 5% in 2000 and 7% in 1999, reflecting higher business volumes, including acquisitions, and increases in e-Consumer. Associates expenses increased $493 million or 13% in 2000, and were up $1.1 billion or 38% from 1998 to 1999, reflecting business growth and acquisitions. Global Investment Management and Private Banking expenses increased 25% in 2000 and 10% in 1999, driven by acquisitions in 2000 and investments in sales and marketing activities, technology, and product development in both years. RESTRUCTURING-RELATED ITEMS AND MERGER-RELATED COSTS Restructuring-related items and merger-related costs of $759 million ($550 million after-tax) in 2000 primarily consisted of exit costs related to the acquisition of Associates. Restructuring charges included the reconfiguration of branch operations, exiting certain activities, and the consolidation and integration of certain middle and back office functions, and are expected to be implemented over the next year. Also included in the costs were $177 million of merger-related costs, which included legal, advisory and SEC filing fees, as well as other costs of administratively closing the acquisition. The 1998 restructuring-related and merger-related costs of $795 million ($535 million after-tax) represented $1.122 billion of exit costs associated with the Citigroup Merger and $65 million of costs 11
associated with administratively closing the Merger, partially offset by a $392 million reduction in the 1997 restructuring charge due to changes in estimates. BENEFITS, CLAIMS, AND CREDIT LOSSES Benefits, claims, and credit losses were $17.9 billion in 2000, up $1.3 billion or 8% from 1999, which was up $1.4 billion or 9% from 1998. Policyholder benefits and claims expense increased 11% to $10.1 billion in 2000 and 7% to $9.1 billion in 1999, primarily as a result of higher loss levels in Commercial and Personal Lines and increased volume in Travelers Life & Annuity. The adjusted provision for credit losses increased 4% to $7.8 billion in 2000 and 13% to $7.5 billion in 1999. Associates adjusted provision for credit losses increased $1.007 billion or 36% to $3.8 billion in 2000, which included a $210 million transportation loss provision relating to the truck loan and leasing portfolio. Global Consumer adjusted benefits, claims, and credit losses of $10.0 billion were up 1% in 2000 and 8% in 1999. Managed net credit losses in 2000 were $6.8 billion and the related loss ratio was 2.48% compared with $6.7 billion and 2.80% in 1999 and $5.9 billion and 2.90% in 1998. The managed consumer loan delinquency ratio (90 days or more past due) was 1.78%, a decrease from 2.07% and 2.13% at the end of 1999 and 1998. Global Corporate and Investment Bank benefits, claims, and credit losses increased to $4.1 billion from $3.9 billion in 1999, which was down from $4.2 billion in 1998. The 2000 increases in Commercial Lines of $236 million, and $155 million in SSB & GRB were partially offset by a decrease of $162 million in EM Corporate, primarily in Asia. The 1999 decrease reflected improvements in Russia and Asia, and a lower provision for credit losses resulting from an improved credit outlook in EM Corporate, partially offset by Latin America. Commercial cash-basis loans and other real estate owned (OREO) of $2.4 billion at December 31, 2000 were up from $2.2 billion a year earlier, primarily reflecting the impact of acquisitions, along with increases in North America, Associates, and Latin America, partially offset by improvements in Asia and the North America real estate portfolio. CAPITAL Total capital (Tier 1 and Tier 2) was $73.0 billion or 11.23% of net risk-adjusted assets, and Tier 1 capital was $54.5 billion or 8.38% at December 31, 2000. See page 69 for the components of Tier 1 and Tier 2 capital. 12
GLOBAL CONSUMER <TABLE> <CAPTION> In Millions of Dollars 2000 1999(1) 1998(1) -------- -------- -------- <S> <C> <C> <C> TOTAL REVENUES, NET OF INTEREST EXPENSE..................... $28,519 $26,140 $22,907 Effect of credit card securitization activity............... 1,904 2,269 2,187 ------- ------- ------- ADJUSTED REVENUES, NET OF INTEREST EXPENSE.................. 30,423 28,409 25,094 ------- ------- ------- Adjusted operating expenses(2).............................. 12,151 11,591 10,812 ------- ------- ------- Provisions for benefits, claims, and credit losses.......... 8,070 7,606 6,959 Effect of credit card securitization activity............... 1,904 2,269 2,187 ------- ------- ------- Adjusted provisions for benefits, claims, and credit losses.................................................... 9,974 9,875 9,146 ------- ------- ------- CORE INCOME BEFORE TAXES AND MINORITY INTEREST.............. 8,298 6,943 5,136 Income taxes................................................ 2,966 2,523 1,889 Minority interest, after-tax................................ 38 73 69 ------- ------- ------- CORE INCOME................................................. 5,294 4,347 3,178 Restructuring-related items, after-tax...................... (13) (56) (401) ------- ------- ------- NET INCOME.................................................. $ 5,281 $ 4,291 $ 2,777 ======= ======= ======= </TABLE> - ------------------------ (1) Reclassified to conform to the 2000 presentation. (2) Excludes restructuring-related items. Global Consumer--which provides banking, lending, investment and personal insurance products and services, including credit and charge cards, to customers around the world--reported core income of $5.294 billion in 2000, up $947 million or 22% from 1999, and in 1999 core income grew $1.169 billion or 37% from 1998. Banking/Lending core income increased $507 million or 23% in 2000 and increased $846 million or 63% in 1999 reflecting strong performance across all businesses. In the insurance segment, core income grew $226 million or 17% in 2000 and $142 million or 12% in 1999 driven by strong performance in Travelers Life and Annuity where income grew $154 million or 25% in 2000 and $130 million or 26% in 1999. In the International segment, the developed markets of Western Europe and Japan reported core income of $484 million in 2000 up $122 million from 1999 and in 1999 income was up $85 million from 1998 despite the foreign currency translation effects of a weakening Euro. Core income in the emerging markets increased $206 million or 33% in 2000 and was up $140 million or 29% in 1999 reflecting strong performance in Asia and in Central and Eastern Europe, Middle East and Africa. In Latin America, core income in 2000 declined $14 million from 1999 reflecting reduced revenue related to Confia, a Mexican bank acquired in August 1998. Net income of $5.281 billion in 2000, $4.291 billion in 1999, and $2.777 billion in 1998 included restructuring-related charges of $13 million ($19 million pretax), $56 million ($87 million pretax), and $401 million ($633 million pretax), respectively. In 2000, Global Consumer recorded restructuring-related items totaling $19 million, including charges of $46 million for the reconfiguration of certain branch operations outside the U.S. and for the downsizing and consolidation of certain back office functions in the U.S., and accelerated depreciation charges on the planned disposition of certain premises and equipment assets, in excess of the normal scheduled depreciation on those assets of $30 million, offset by a reduction in restructuring reserves due to changes in estimates attributable to facts and circumstances arising subsequent to the original restructuring charges of $57 million. In 1999, Global Consumer recorded restructuring-related items totaling $87 million, including charges of $104 million, of which $82 million related to new initiatives primarily for the reconfiguration of certain consumer branch operations outside the U.S., downsizing of 13
certain marketing operations, and costs associated with exiting a non-strategic business. The 1999 items also include accelerated depreciation charges of $114 million, offset by a reduction of restructuring reserves of $131 million. In 1998, Global Consumer recorded a net restructuring charge totaling $633 million for regional consolidation of call centers and other back office functions worldwide, reduction of management layers, sales force restructuring, integration of overlapping marketing and product management groups, and exiting several non-strategic operations. See Note 15 of Notes to Consolidated Financial Statements for a discussion of restructuring-related items. In 2000, Citigroup adopted the Federal Financial Institutions Examination Council's (FFIEC) revised Uniform Retail Classification and Account Management Policy, which provided guidance on the reporting of delinquent consumer loans and the timing of associated charge-offs for Citigroup's depository institution subsidiaries. The adoption of the policy resulted in additional net credit losses of approximately $90 million which were charged against the allowance for credit losses. BANKING/LENDING CITIBANKING NORTH AMERICA <TABLE> <CAPTION> In Millions of Dollars 2000 1999(1) 1998(1) -------- -------- -------- <S> <C> <C> <C> TOTAL REVENUES, NET OF INTEREST EXPENSE..................... $2,277 $2,104 $1,970 Adjusted operating expenses(2).............................. 1,310 1,354 1,665 Provision for credit losses................................. 29 64 100 ------ ------ ------ CORE INCOME BEFORE TAXES.................................... 938 686 205 Income taxes................................................ 372 288 91 ------ ------ ------ CORE INCOME................................................. 566 398 114 Restructuring-related items, after-tax...................... 9 1 (89) ------ ------ ------ NET INCOME.................................................. $ 575 $ 399 $ 25 ====== ====== ====== Average assets (IN BILLIONS OF DOLLARS)..................... $ 9 $ 9 $ 10 Return on assets............................................ 6.39% 4.43% 0.25% ====== ====== ====== EXCLUDING RESTRUCTURING-RELATED ITEMS Return on assets............................................ 6.29% 4.42% 1.14% ====== ====== ====== </TABLE> - ------------------------ (1) Reclassified to conform to the 2000 presentation. (2) Excludes restructuring-related items. Citibanking North America--which delivers banking, lending and investment services to customers through Citibank's branches and electronic delivery systems--reported core income of $566 million in 2000, up $168 million or 42% from 1999 and in 1999 grew $284 million or 249% from 1998 due to revenue growth, and continued expense reduction initiatives and credit cost improvements. Net income of $575 million in 2000, $399 million in 1999, and $25 million in 1998 included restructuring-related credits of $9 million ($15 million pretax), and $1 million ($4 million pretax) in 2000 and 1999, respectively, and restructuring-related charges of $89 million ($139 million pretax) in 1998. 14
As shown in the following table, Citibanking grew accounts and customer deposits in both 2000 and 1999. <TABLE> <CAPTION> In Billions of Dollars 2000 1999 1998 -------- -------- -------- <S> <C> <C> <C> Accounts (IN MILLIONS)...................................... 6.7 6.3 5.8 Average customer deposits................................... $44.7 $42.1 $39.7 Average loans............................................... $ 7.0 $ 7.4 $ 7.7 </TABLE> Revenues, net of interest expense, of $2.277 billion increased $173 million or 8% from 1999 which increased $134 million or 7% from 1998, reflecting growth in customer deposits and spreads, and increased investment product fees, partially offset by lower loan revenues. Investment product fees and commissions increased 24% and 54% in 2000 and 1999, respectively. Adjusted operating expenses of $1.310 billion in 2000 declined $44 million or 3% from 1999, and were down $311 million or 19% in 1999. The significant reduction in expenses in 1999 reflects the impact of expense management initiatives that reduced staff and other fixed expenses, as well as lower marketing program spending. The provision for credit losses declined to $29 million in 2000 from $64 million in 1999 and $100 million in 1998. The net credit loss ratio of 0.91% in 2000 declined from 1.22% in 1999 and 1.39% in 1998. Loans delinquent 90 days or more of $35 million or 0.48% at December 31, 2000 declined from $55 million or 0.78% at December 31, 1999 and $93 million or 1.25% at December 31, 1998. The declines in the provision for credit losses and delinquencies reflect continued improvement in the portfolio and a decline in loan volumes. MORTGAGE BANKING <TABLE> <CAPTION> In Millions of Dollars 2000 1999(1) 1998(1) -------- -------- -------- <S> <C> <C> <C> TOTAL REVENUES, NET OF INTEREST EXPENSE..................... $ 829 $ 747 $ 620 Adjusted operating expenses(2).............................. 365 329 254 (Benefit) Provision for credit losses....................... (11) 17 20 ----- ----- ----- CORE INCOME BEFORE TAXES AND MINORITY INTEREST.............. 475 401 346 Income taxes................................................ 181 157 135 Minority interest, after-tax................................ 22 19 5 ----- ----- ----- CORE INCOME................................................. 272 225 206 Restructuring-related items, after-tax...................... -- -- (6) ----- ----- ----- NET INCOME.................................................. $ 272 $ 225 $ 200 ===== ===== ===== Average assets (IN BILLIONS OF DOLLARS)..................... $ 38 $ 29 $ 25 Return on assets............................................ 0.72% 0.78% 0.80% ===== ===== ===== EXCLUDING RESTRUCTURING-RELATED ITEMS Return on assets............................................ 0.72% 0.78% 0.82% ===== ===== ===== </TABLE> - ------------------------ (1) Reclassified to conform to the 2000 presentation. (2) Excludes restructuring-related items. Mortgage Banking--which originates and services mortgages and student loans for customers across the United States--reported core income of $272 million in 2000, up $47 million or 21% from 1999 and in 1999 income was up $19 million or 9% from 1998, reflecting growth in both the mortgage 15
and student loan businesses and credit improvement in the mortgage portfolio. Core income in 2000 and 1999 also reflects the April 1999 acquisition of the principal operating assets and certain liabilities of Source One Mortgage Services Corporation (Source One). Net income of $200 million in 1998 included a restructuring-related charge of $6 million ($9 million pretax). As shown in the following table, accounts grew 29% in 2000 and 21% in 1999, reflecting loan growth in both mortgages and student loans and an increase in serviced mortgage accounts. In 2000, growth in mortgage loans reflects higher originations with a larger proportion at variable interest rates which are typically held on-balance sheet rather than securitized. Growth in mortgage originations and loans in both periods, and account growth in 1999 also reflects Source One. <TABLE> <CAPTION> In Billions of Dollars 2000 1999 1998 -------- -------- -------- <S> <C> <C> <C> Accounts (IN MILLIONS)(1)................................... 4.4 3.4 2.8 Average loans(1)............................................ $35.4 $27.5 $23.9 Mortgage originations....................................... $19.1 $18.2 $16.4 </TABLE> - ------------------------ (1) Includes student loans. Revenues, net of interest expense, of $829 million in 2000 grew $82 million or 11% from 1999, reflecting loan growth and higher servicing income, partially offset by reduced spreads and lower securitization activity. Revenues in 1999 increased $127 million or 20% from 1998, principally reflecting the acquisition of Source One and growth in the student loan portfolio. Adjusted operating expenses increased $36 million or 11% in 2000 and grew $75 million or 30% in 1999, reflecting additional business volumes, including the Source One acquisition in April 1999. The (benefit) provision for credit losses of ($11) million in 2000 declined from $17 million in 1999 and $20 million in 1998. The adoption of revised FFIEC write-off policies in 2000 added $17 million to net credit losses, which were charged against the allowance for credit losses, and 5 basis points to the 2000 net credit loss ratio. The 2000 net credit loss ratio was 0.13% (0.08% excluding the effect of FFIEC policy revisions) compared with 0.16% in 1999 and 0.31% in 1998 and the ratio of loans delinquent 90 days or more was 1.99% at December 31, 2000 compared with 2.31% at December 31, 1999 and 2.44% at December 31, 1998. The declines in the 2000 provision, the net credit loss ratio (excluding FFIEC), and the delinquency ratio principally reflect improvement in the mortgage portfolio. The 1999 improvement in mortgage delinquencies was partially offset by higher student loan delinquencies as a result of a statutory increase in the length of time Citigroup must hold delinquent government-guaranteed student loans prior to submitting a claim under the government guarantee. 16
NORTH AMERICA CARDS <TABLE> <CAPTION> In Millions of Dollars 2000 1999(1) 1998(1) -------- -------- -------- <S> <C> <C> <C> TOTAL REVENUES, NET OF INTEREST EXPENSE..................... $6,293 $5,686 $4,899 Effect of credit card securitization activity............... 1,904 2,269 2,187 ------ ------ ------ ADJUSTED REVENUES, NET OF INTEREST EXPENSE.................. 8,197 7,955 7,086 ------ ------ ------ Adjusted operating expenses(2).............................. 2,925 2,847 2,552 Adjusted provision for credit losses(3)..................... 3,075 3,234 3,240 ------ ------ ------ CORE INCOME BEFORE TAXES.................................... 2,197 1,874 1,294 Income taxes................................................ 816 692 488 ------ ------ ------ CORE INCOME................................................. 1,381 1,182 806 Restructuring-related items, after-tax...................... 6 12 (39) ------ ------ ------ NET INCOME.................................................. $1,387 $1,194 $ 767 ====== ====== ====== Average assets (IN BILLIONS OF DOLLARS)(4).................. $ 37 $ 28 $ 27 Return on assets............................................ 3.75% 4.26% 2.84% ====== ====== ====== EXCLUDING RESTRUCTURING-RELATED ITEMS Return on assets(5)......................................... 3.73% 4.22% 2.99% ====== ====== ====== </TABLE> - ------------------------ (1) Reclassified to conform to the 2000 presentation. (2) Excludes restructuring-related items. (3) Adjusted for the effect of credit card securitization. (4) Adjusted for the effect of credit card securitization, managed average assets were $84 billion, $75 billion, and $63 billion in 2000, 1999, and 1998, respectively. (5) Adjusted for the effect of credit card securitization, the return on managed assets, excluding restructuring-related items was 1.64% in 2000, 1.58% in 1999, and 1.28% in 1998. Cards--North America bankcards and Diners Club reported core income of $1.381 billion in 2000, up $199 million or 17% from 1999 and in 1999 was up $376 million or 47% from 1998, reflecting improvements in the bankcards business. Net income of $1.387 billion in 2000, $1.194 billion in 1999, and $767 million in 1998 included restructuring-related credits of $6 million ($8 million pretax) and $12 million ($18 million pretax) in 2000 and 1999, respectively, and restructuring-related charges of $39 million ($58 million pretax) in 1998. Risk adjusted margin is a measure of profitability calculated as adjusted revenues less managed net credit losses as a percentage of average managed loans, consistent with the goal of matching the revenues generated by the loan portfolio with the credit risk undertaken. As shown in the following table, North America bankcards risk adjusted margin of 6.13% decreased 27 basis points from 1999 as lower spreads on the portfolio were partially offset by credit improvements and an increase in non-interest revenue, primarily interchange fees. <TABLE> <CAPTION> In Billions of Dollars 2000 1999 1998 -------- -------- -------- <S> <C> <C> <C> Risk adjusted revenues(1)................................. $4.8 $4.5 $3.6 Risk adjusted margin %(2)................................. 6.13% 6.40% 6.11% </TABLE> - ------------------------ (1) Adjusted revenues less managed net credit losses. (2) Risk adjusted revenues as a percentage of average managed loans. 17
Adjusted revenues, net of interest expense, of $8.197 billion in 2000 increased $242 million or 3% from 1999, reflecting receivable growth, including portfolio acquisitions, higher interchange fee revenues due to sales volume growth and increased fees from other cardmember services, offset by lower spreads. Spread compression in the portfolio reflects changes in portfolio mix, including an increased percentage of the portfolio priced at low introductory rates, and higher funding costs due to increased interest rates. Adjusted revenues of $7.955 billion in 1999 increased $869 million or 12% from 1998 reflecting receivable and sales volume growth, including the effect of acquisitions, and risk-based pricing actions, partially offset by lower spreads. As shown in the following table, on a managed basis, the North America bankcard portfolio experienced growth in accounts, sales, cards in force, and receivables in 2000, including the effect of portfolio acquisitions. Accounts increased only slightly in 1999 and cards in force declined reflecting management initiatives that resulted in the closing of inactive and/or high-risk accounts. <TABLE> <CAPTION> In Billions of Dollars 2000 1999 1998 -------- -------- -------- <S> <C> <C> <C> Accounts (IN MILLIONS).............................. 44.0 41.1 41.0 Cards in force (IN MILLIONS)........................ 68 65 66 Total sales......................................... $188.0 $163.3 $141.3 End-of-period managed receivables................... $ 87.7 $ 74.7 $ 70.0 </TABLE> Adjusted operating expenses of $2.925 billion in 2000 increased $78 million or 3% from 1999, and in 1999 grew $295 million or 12% from 1998, reflecting acquisitions and increased target-marketing efforts in North America bankcards. The adjusted provision for credit losses in 2000 was $3.075 billion compared with $3.234 billion in 1999 and $3.240 billion in 1998. North America bankcards managed net credit losses in 2000 were $3.022 billion and the related loss ratio was 3.85%, compared with $3.158 billion and 4.54% in 1999 and $3.142 billion and 5.32% in 1998. North America bankcards managed loans delinquent 90 days or more were $1.140 billion or 1.31% of loans at December 31, 2000 compared with $1.066 billion or 1.44% at December 31, 1999 and $1.001 billion or 1.45% at December 31, 1998. The improvement in the 2000 net credit loss ratio reflects industry-wide bankruptcy trends and credit risk management initiatives. CITIFINANCIAL <TABLE> <CAPTION> In Millions of Dollars 2000 1999(1) 1998(1) -------- -------- -------- <S> <C> <C> <C> TOTAL REVENUES, NET OF INTEREST EXPENSE..................... $1,947 $1,615 $1,274 Adjusted operating expenses (2)............................. 757 617 505 Provisions for benefits, claims, and credit losses.......... 431 385 419 ------ ------ ------ CORE INCOME BEFORE TAXES.................................... 759 613 350 Income taxes................................................ 278 225 129 ------ ------ ------ CORE INCOME................................................. 481 388 221 Restructuring-related items, after-tax...................... -- (2) (1) ------ ------ ------ NET INCOME.................................................. $ 481 $ 386 $ 220 ====== ====== ====== Average assets (IN BILLIONS OF DOLLARS)..................... $ 20 $ 16 $ 12 Return on assets............................................ 2.41% 2.41% 1.83% ====== ====== ====== EXCLUDING RESTRUCTURING-RELATED ITEMS Return on assets............................................ 2.41% 2.43% 1.84% ====== ====== ====== </TABLE> - ------------------------ (1) Reclassified to conform to the 2000 presentation. (2) Excludes restructuring-related items. 18
CitiFinancial--which provides community-based lending services through its branch network and through cross-selling initiatives with other Citigroup businesses--reported core income of $481 million in 2000 up $93 million or 24% from 1999 and in 1999 core income was up $167 million or 76% from 1998, reflecting continued strong receivable growth, including the effects of acquisitions, and improved credit performance. Net income of $386 million in 1999 and $220 million in 1998 included restructuring-related items of $2 million ($3 million pretax) and $1 million ($2 million pretax), respectively. As shown in the following table, receivables grew 30% in both 2000 and 1999 resulting from higher volumes from CitiFinancial branches, and the cross-selling of products through other Citigroup distribution channels. Growth in 1999 also reflects acquisitions. At December 31, 2000, the portfolio consisted of 63% real estate-secured loans, 30% personal loans, and 7% sales finance and other, compared with 58%, 34% and 8% in 1999 and 56%, 36%, and 8% in 1998, respectively. The average net interest margin on receivables of 8.13% in 2000 declined from 8.85% in 1999 and 8.90% in 1998, reflecting lower yields due to changes in portfolio mix toward more real estate secured loans and higher funding costs due to increased interest rates. <TABLE> <CAPTION> 2000 1999 1998 -------- -------- -------- <S> <C> <C> <C> End-of-period managed receivables (IN BILLIONS)........ $20.1 $15.5 $11.9 Average interest margin %.............................. 8.13% 8.85% 8.90% </TABLE> Revenues, net of interest expense, of $1.947 billion in 2000 were up $332 million or 21% from 1999 and in 1999 were up $341 million or 27% from 1998, reflecting continued strong receivable growth offset by lower spreads. Adjusted operating expenses of $757 million in 2000 increased $140 million or 23% from 1999 and in 1999 increased $112 million or 22% from 1998, reflecting higher business volumes, including acquisitions. The provision for benefits, claims, and credit losses was $431 million in 2000 up from $385 million in 1999 and $419 million in 1998, primarily reflecting receivable growth. The net credit loss ratio of 1.96% in 2000 was down from 2.18% in 1999 and 2.75% in 1998. The 2000 net credit loss ratio included a benefit of approximately 18 basis points related to changes in the write-off policy for certain bankrupt accounts. Loans delinquent 90 days or more were $277 million or 1.38% of loans in 2000 compared to $203 million or 1.31% in 1999 and $171 million or 1.44% in 1998. The increase in delinquencies from a year-ago reflects the impact of previous acquisitions. INSURANCE TRAVELERS LIFE AND ANNUITY <TABLE> <CAPTION> In Millions of Dollars 2000 1999(1) 1998(1) -------- -------- -------- <S> <C> <C> <C> TOTAL REVENUES, NET OF INTEREST EXPENSE..................... $3,891 $3,394 $3,012 Provision for benefits and claims........................... 2,325 1,997 1,863 Adjusted operating expenses(2).............................. 409 451 396 ------ ------ ------ CORE INCOME BEFORE TAXES.................................... 1,157 946 753 Income taxes................................................ 380 323 260 ------ ------ ------ CORE INCOME(3).............................................. 777 623 493 Restructuring-related items, after-tax...................... -- -- (8) ------ ------ ------ NET INCOME(3)............................................... $ 777 $ 623 $ 485 ====== ====== ====== </TABLE> - ------------------------ (1) Reclassified to conform to the 2000 presentation. (2) Excludes restructuring-related items. (3) Excludes investment gains/losses included in Investment Activities segment. 19
Travelers Life and Annuity offers individual annuity, group annuity, individual life insurance products and corporate owned life insurance (COLI) marketed by The Travelers Insurance Company (TIC) and its wholly owned subsidiary The Travelers Life and Annuity Company (TLAC) under the Travelers name. Among the range of individual products offered are fixed and variable deferred annuities, payout annuities and term, universal and variable life insurance. These products are primarily distributed through CitiStreet Retirement Services (CitiStreet) (via The Copeland Companies (Copeland)), a joint venture, Salomon Smith Barney Financial Consultants, Primerica Financial Services (Primerica), Citibank, and a nationwide network of independent agents. The COLI product is a variable universal life product distributed through independent specialty brokers. The group products include institutional pensions, including guaranteed investment contracts (GICs), payout annuities, group annuities to employer-sponsored retirement and savings plans and structured finance transactions. Core income was $777 million in 2000 compared to $623 million in 1999 and $493 million in 1998. The 25% improvement in 2000 reflects increased business volume, a strong capital base and particularly strong investment income versus the prior-year period. During 2000, this business continued strong individual annuity sales and achieved double-digit business volume growth in group annuity account balances and individual life net written premiums, reflecting growth in retirement savings and estate planning products and strong momentum from cross-selling initiatives. The 26% improvement in 1999 was largely driven by increases in business volumes and strong investment income. During 1999, this business achieved double-digit growth in individual and group annuity account balances and direct periodic life insurance premiums. The continued growth in 2000 and 1999 reflects both greater popularity of these products with an aging American population and strong momentum from cross-selling initiatives. Adjusted operating expenses decreased in 2000 compared to the prior-year period due to the contribution of Copeland to the CitiStreet joint venture and the absence of certain one-time technology expenses in 1999. The increase in revenues was also mitigated by the contribution of Copeland. The cross-selling initiatives of Travelers Life and Annuity products through Primerica, Citibank, Salomon Smith Barney Financial Consultants, CitiStreet via Copeland, and a nationwide network of independent agents and strong group sales through various intermediaries reflect the ongoing effort to build market share by strengthening relationships in key distribution channels. On July 31, 2000, TIC sold 90% of its individual long-term care insurance business to General Electric Capital Assurance Company in the form of an indemnity reinsurance arrangement. Proceeds from the sale were $410 million, resulting in a deferred gain of approximately $150 million after-tax. The following table shows net written premiums and deposits by product line, excluding long-term care insurance written premiums for the three years ended December 31: <TABLE> <CAPTION> In Millions of dollars 2000 1999 1998 -------- -------- -------- <S> <C> <C> <C> INDIVIDUAL ANNUITIES Fixed..................................................... $ 1,266 $ 1,008 $ 908 Variable.................................................. 5,025 4,265 2,892 Individual payout......................................... 80 78 70 GICS AND OTHER GROUP ANNUITIES.............................. 5,528 5,619 4,049 INDIVIDUAL LIFE INSURANCE Direct periodic premiums and deposits....................... 511 409 322 Single premium deposits..................................... 99 84 85 Reinsurance................................................. (84) (71) (66) ------- ------- ------ $12,425 $11,392 $8,260 ======= ======= ====== </TABLE> 20
The majority of the annuity business and a substantial portion of the life business written by Travelers Life and Annuity is accounted for as investment contracts, with the result that the premiums and deposits collected are not included in revenues. Increased variable annuities sales drove account balances to $29.4 billion at December 31, 2000, from $27.9 billion at year-end 1999 (up 5%) and $21.5 billion at year-end 1998. Net written premiums and deposits increased in 2000 to $6.371 billion from $5.351 billion in 1999 (up 19%) and $3.870 billion in 1998. Sales reflect significant increased production at Salomon Smith Barney during 2000 and increased sales from all Travelers Life and Annuity core distribution channels during both 2000 and 1999. Group annuity account balances and benefit reserves reached $17.5 billion at December 31, 2000, up from $15.1 billion at year-end 1999 (up 16%), and $13.2 billion at year-end 1998. The group annuity businesses experienced continued strong sales momentum in variable rate guaranteed investment contracts, employer sponsored group plans and cross-selling structured settlement annuities through Travelers Property Casualty Corp. (TPC). Net written premiums and deposits (excluding the Company's employee pension plan deposits) in 2000 were $5.528 billion, compared to $5.619 billion in 1999 (which reflected particularly strong structured finance transactions) and $4.049 billion in 1998. Direct periodic premiums and deposits for individual life insurance were $511 million in 2000 compared to $409 million in 1999 (up 25%) and $322 million in 1998. Life insurance in force was $66.9 billion at December 31, 2000, up from $60.6 billion at year-end 1999 and $55.4 billion at year-end 1998. PRIMERICA FINANCIAL SERVICES <TABLE> <CAPTION> In Millions of Dollars 2000 1999 1998 -------- -------- -------- <S> <C> <C> <C> TOTAL REVENUES, NET OF INTEREST EXPENSE..................... $1,915 $1,775 $1,654 Provision for benefits and claims........................... 496 487 484 Adjusted operating expenses(1).............................. 659 586 546 ------ ------ ------ CORE INCOME BEFORE TAXES.................................... 760 702 624 Income taxes................................................ 268 250 224 ------ ------ ------ CORE INCOME(2).............................................. 492 452 400 Restructuring-related items, after-tax...................... 1 -- (2) ------ ------ ------ NET INCOME.................................................. $ 493 $ 452 $ 398 ====== ====== ====== </TABLE> - ------------------------ (1) Excludes restructuring-related items. (2) Excludes investment gains/losses included in Investment Activities segment. Primerica Financial Services--which sells life insurance as well as other products manufactured by the Company, including Salomon Smith Barney mutual funds, CitiFinancial mortgages and personal loans and Travelers Insurance Company annuity products--reported core income of $492 million in 2000 compared to $452 million in 1999 and $400 million in 1998. The 9% improvement in 2000 reflects strong mutual fund sales and net investment income and was partially offset by increased infrastructure investment including international expansion. The 13% increase in 1999 results reflects continued success at cross selling a range of products (particularly mutual funds, variable annuities and debt consolidation loans), growth in life insurance in force, improved investment income, and disciplined expense management. Increases in production and cross-selling initiatives were achieved during 2000. Earned premiums net of reinsurance were $1.106 billion, $1.071 billion, and $1.057 billion in 2000, 1999, and 1998, respectively. Total face amount of issued term life insurance was $67.4 billion in 2000 compared to 21
$56.2 billion in 1999 and $57.4 billion in 1998. The number of policies issued was 234,700 in 2000, compared to 209,900 in 1999 and 223,600 in 1998. The average face value per policy issued was $245,000 in 2000 compared to $229,000 in 1999 and $223,000 in 1998. Life insurance in force at year-end 2000 reached $412.7 billion, up from $394.9 billion at year-end 1999 and $383.7 billion at year-end 1998, and continued to reflect good policy persistency. In recent years, Primerica has leveraged cross selling through the Financial Needs Analysis (FNA)--the diagnostic tool that enhances the ability of the Personal Financial Analysts to address client needs--to expand its business beyond life insurance and now offers its clients a greater array of financial products and services, delivered personally through its sales force. During 2000, 438,000 FNAs were submitted. In addition, Primerica has traditionally offered mutual funds to clients as a means to invest the relative savings realized through the purchase of term life insurance as compared to traditional whole life insurance. Sales of mutual funds were $4.220 billion in 2000 compared to $3.124 billion in 1999 and $2.942 billion in 1998. During 2000, proprietary mutual funds accounted for 50% of Primerica's U.S. sales and 43% of Primerica's total sales. Variable annuity sales continued to show momentum, reaching net written premiums and deposits of $1.057 billion in 2000, up from $990 million in 1999 and $652 million in 1998. As a result of the increased emphasis placed on cross-selling initiatives, current year sales predominately reflect sales of Travelers Life and Annuity variable annuity products. Cash advanced on $.M.A.R.T-Registered Trademark- loan and $.A.F.E.-Registered Trademark- loan products underwritten by Travelers Bank & Trust, fsb and CitiFinancial was $2.09 billion in 2000, up 9% from $1.92 billion in 1999 and $1.46 billion in 1998. PERSONAL LINES <TABLE> <CAPTION> In Millions of Dollars 2000 1999 1998 -------- -------- -------- <S> <C> <C> <C> TOTAL REVENUES, NET OF INTEREST EXPENSE..................... $4,187 $4,043 $3,666 Claims and claim adjustment expenses........................ 2,734 2,554 2,181 Total operating expenses.................................... 987 1,013 930 ------ ------ ------ INCOME BEFORE TAXES AND MINORITY INTEREST................... 466 476 555 Income taxes................................................ 139 143 172 Minority interest, after-tax(1)............................. 16 54 64 ------ ------ ------ NET INCOME(2)............................................... $ 311 $ 279 $ 319 ====== ====== ====== </TABLE> - ------------------------ (1) See Note 2 of Notes to Consolidated Financial Statements. (2) Excludes investment gains/losses included in Investment Activities segment. Personal Lines--which writes all types of property and casualty insurance covering personal risks--reported net income of $311 million in 2000 compared to $279 million in 1999 and $319 million in 1998. Included in 1999 is a charge related to curtailing the sale of TRAVELERS SECURE-Registered Trademark- auto and homeowners products. The 2000 results reflect increased net investment income, lower catastrophe losses, and the incremental earnings from the minority interest buyback, offset in part by increased loss cost trends and lower favorable prior-year reserve development. The 1999 decrease primarily reflects higher catastrophe losses due to Hurricane Floyd, higher loss ratios in the TRAVELERS SECURE-Registered Trademark- program, the charge related to curtailing the sale of TRAVELERS SECURE-Registered Trademark- products, and lower favorable prior-year reserve development, partially offset by the increase in income due to the growth in earned premiums. 22
The following table shows net written premiums by product line for the three years ended December 31: <TABLE> <CAPTION> In Millions of Dollars 2000 1999 1998 -------- -------- -------- <S> <C> <C> <C> Personal automobile................................. $2,366 $2,369 $2,328 Homeowners and other................................ 1,447 1,436 1,162 ------ ------ ------ TOTAL NET WRITTEN PREMIUMS.......................... $3,813 $3,805 $3,490 ====== ====== ====== </TABLE> Personal Lines net written premiums for 2000 were $3.813 billion compared to $3.805 billion in 1999 and $3.490 billion in 1998. Net written premiums in 1999 included an adjustment associated with the termination of a quota share reinsurance arrangement, which increased homeowners' premiums written by independent agents by $72 million. The increase in net written premiums in 2000 compared to 1999, excluding the reinsurance adjustment, primarily reflects growth in target markets served by independent agents and growth in affinity group marketing and joint marketing arrangements and is offset in part by planned reductions in the TRAVELERS SECURE-Registered Trademark- auto and homeowners business, a mandated rate decrease in New Jersey and continued emphasis on disciplined underwriting and risk management. The business retention ratio for 2000 was moderately lower than 1999, reflecting planned reductions in the TRAVELERS SECURE-Registered Trademark- business. The 1999 increase compared to 1998 primarily reflected growth in independent agents business and growth in affinity group marketing and joint marketing arrangements. Catastrophe losses, net of taxes and reinsurance, were $54 million in 2000 compared to $79 million in 1999 and $44 million in 1998. Catastrophe losses in 2000 were primarily due to Texas, Midwest and Northeast wind and hailstorms in the second quarter and hailstorms in Louisiana and Texas in the first quarter. Catastrophe losses in 1999 were primarily due to Hurricane Floyd in the third quarter, wind and hailstorms on the East Coast and tornadoes in the Midwest in the second quarter and a wind and ice storm in the Midwest and Northeast in the first quarter. Catastrophe losses in 1998 were primarily due to Hurricanes Bonnie and Georges, severe first quarter winter storms and second and third quarter wind and hailstorms. The statutory combined ratio for Personal Lines was 99.7% in 2000 compared to 96.7% in 1999 and 93.9% in 1998. The U.S. generally accepted accounting principles (GAAP) combined ratio for Personal Lines was 99.3% in 2000 compared to 96.8% in 1999 and 93.2% in 1998. GAAP combined ratios for Personal Lines differ from statutory combined ratios primarily due to the deferral and amortization of certain expenses for GAAP reporting purposes only. The 1999 statutory and GAAP combined ratios for Personal Lines include an adjustment associated with the termination of a quota share reinsurance arrangement. Excluding this adjustment, the 1999 statutory and GAAP combined ratios were 96.5% and 97.3%, respectively. The increase in the 2000 statutory and GAAP combined ratios compared to the statutory and GAAP combined ratios (excluding the premium adjustment) for 1999 was primarily due to increased loss cost trends and lower favorable prior-year reserve development, offset in part by the TRAVELERS SECURE-Registered Trademark- charge taken in the third quarter of 1999 and lower catastrophe losses. The increase in the 1999 statutory and GAAP combined ratios excluding this adjustment compared to the 1998 statutory and GAAP combined ratios was due to higher catastrophe losses due to Hurricane Floyd, higher loss ratios in the TRAVELERS SECURE-Registered Trademark- program, the TRAVELERS SECURE-Registered Trademark- charge, and lower favorable prior-year reserve development in the automobile bodily injury line. 23
INTERNATIONAL CONSUMER WESTERN EUROPE <TABLE> <CAPTION> In Millions of Dollars 2000 1999(1) 1998(1) -------- -------- -------- <S> <C> <C> <C> TOTAL REVENUES, NET OF INTEREST EXPENSE..................... $1,899 $1,991 $1,869 Adjusted operating expenses(2).............................. 1,125 1,271 1,265 Provisions for benefits, claims, and credit losses.......... 234 280 262 ------ ------ ------ CORE INCOME BEFORE TAXES.................................... 540 440 342 Income taxes................................................ 195 165 131 ------ ------ ------ CORE INCOME................................................. 345 275 211 Restructuring-related items, after-tax...................... -- 2 (125) ------ ------ ------ NET INCOME.................................................. $ 345 $ 277 $ 86 ====== ====== ====== Average assets (IN BILLIONS OF DOLLARS)..................... $ 18 $ 19 $ 19 Return on assets............................................ 1.92% 1.46% 0.45% ====== ====== ====== EXCLUDING RESTRUCTURING-RELATED ITEMS Return on assets............................................ 1.92% 1.45% 1.11% ====== ====== ====== </TABLE> - ------------------------ (1) Reclassified to conform to the 2000 presentation. (2) Excludes restructuring-related items. Western Europe--which provides banking, lending and investment services, including credit and charge cards, to customers throughout the region--reported core income of $345 million in 2000, up $70 million or 25% from 1999 and in 1999 income was up $64 million or 30% from 1998, reflecting growth across the region, particularly Germany. Net income of $277 million in 1999 and $86 million in 1998 included restructuring credits of $2 million ($4 million pretax) in 1999 and restructuring-related charges of $125 million ($239 million pretax) in 1998. The net effect of foreign currency translation reduced income growth by approximately $54 million in 2000 and reduced revenue and expense and growth rates by 14 and 12 percentage points from 1999. In 1999, the net effect of foreign currency translation on core income growth from 1998 was minimal, however, revenue and expenses growth rates were reduced by 3 and 4 percentage points, respectively. As shown in the following table, Western Europe reported 7% account growth in 2000 and 3% in 1999 primarily reflecting loan and deposit growth. However, loans and customer deposit volumes were reduced by the effect of foreign currency translation. <TABLE> <CAPTION> In Billions of Dollars 2000 1999 1998 -------- -------- -------- <S> <C> <C> <C> Accounts (IN MILLIONS)................................. 9.5 8.9 8.6 Average customer deposits.............................. $12.4 $13.7 $14.3 Average loans.......................................... $14.6 $15.3 $14.9 </TABLE> Revenues, net of interest expense, of $1.899 billion in 2000 decreased $92 million or 5% from 1999 as higher investment product fees, loan growth and higher deposit spreads were more than offset by the effect of foreign currency translation. Revenues in 1999 increased $122 million or 7% from 1998, as growth across most products and countries was partially offset by foreign currency translation effects. Adjusted operating expenses of $1.125 billion declined $146 million or 11% from 1999 as costs associated with higher business volumes were more than offset by lower regional office and technology expenses and the effect of foreign currency translation. Expenses in 1999 were up slightly from 1998. 24
The provision for benefits, claims and credit losses was $234 million in 2000, down from $280 million in 1999 and $262 million in 1998. The adoption of revised FFIEC write-off policies in 2000 added $10 million to net credit losses, which were charged against the allowance for credit losses, and 7 basis points to the net credit loss ratio. The net credit loss ratio was 1.62% (1.55% excluding the effects of FFIEC policy revisions) in 2000, compared with 1.64% in 1999 and 1.61% in 1998. Loans delinquent 90 days or more of $782 million or 5.09% of loans at December 31, 2000 decreased from $868 million or 5.75% at December 31, 1999 and $911 million or 5.69% at December 31, 1998. JAPAN <TABLE> <CAPTION> In Millions of Dollars 2000 1999(1) 1998(1) -------- -------- -------- <S> <C> <C> <C> TOTAL REVENUES, NET OF INTEREST EXPENSE..................... $ 652 $ 392 $ 293 Adjusted operating expenses(2).............................. 417 239 177 Provision for credit losses................................. 20 12 8 ----- ----- ----- INCOME BEFORE TAXES......................................... 215 141 108 Income taxes................................................ 76 54 42 ----- ----- ----- NET INCOME.................................................. 139 87 66 ===== ===== ===== Average assets (IN BILLIONS OF DOLLARS)..................... $ 7 $ 5 $ 4 Return on assets............................................ 1.99% 1.74% 1.65% ===== ===== ===== </TABLE> - ------------------------ (1) Reclassified to conform to the 2000 presentation. (2) Excludes restructuring-related items. Japan--which provides banking, lending and investment services, including credit and charge cards, to customers throughout the country--reported net income of $139 million in 2000, up $52 million or 60% from 1999 and net income in 1999 was up $21 million or 32% from 1998, reflecting expansion of the business, driven by growth in deposits, investment products, and mortgages. Net income growth in 2000 also reflects the Diners Club acquisition in the 2000 first quarter. Net foreign currency translation effects increased revenue growth by 2 and 11 percentage points, and expense growth by 4 and 17 percentage points in 2000 and 1999, respectively. As shown in the following table, Japan reported strong growth in accounts, customer deposits, and loans. In 2000, the Diners Club acquisition added approximately $0.5 billion in loans and 0.6 million accounts. <TABLE> <CAPTION> In Billions of Dollars 2000 1999 1998 -------- -------- -------- <S> <C> <C> <C> Accounts (IN MILLIONS).................................. 2.8 2.0 1.5 Average customer deposits............................... $13.6 $11.4 $8.5 Average loans........................................... $ 3.2 $ 1.6 $0.8 </TABLE> Revenues, net of interest expense, of $652 million in 2000 grew $260 million or 66% from 1999 and in 1999 was up $99 million or 34% from 1998, reflecting higher deposit volumes and spreads, and growth in investment product fees and mortgage loans. Adjusted operating expenses increased $178 million or 74% in 2000 and grew $62 million or 35% in 1999 reflecting costs associated with expansion efforts and additional business volumes. In 2000, both revenue and expense increases also reflect the Diners Club acquisition. The provision for benefits, claims, and credit losses in 2000 was $20 million, up from $12 million in 1999 and $8 million in 1998. The net credit loss ratio of 0.63% in 2000 declined from 0.76% in 1999 and 0.98% in 1998 and loans delinquent 90 days or more were $8 million or 0.22% of loans at 25
December 31, 2000, down from $11 million or 0.49% at December 31, 1999 and $12 million or 1.01% at December 31, 1998. ASIA <TABLE> <CAPTION> In Millions of Dollars 2000 1999(1) 1998(1) -------- -------- -------- <S> <C> <C> <C> TOTAL REVENUES, NET OF INTEREST EXPENSE..................... $2,109 $1,852 $1,557 Adjusted operating expenses(2).............................. 962 943 797 Provisions for benefits, claims, and credit losses.......... 273 341 243 ------ ------ ------ CORE INCOME BEFORE TAXES.................................... 874 568 517 Income taxes................................................ 311 212 200 ------ ------ ------ CORE INCOME................................................. 563 356 317 Restructuring-related items, after-tax...................... (4) (13) (64) ------ ------ ------ NET INCOME.................................................. $ 559 $ 343 $ 253 ====== ====== ====== Average assets (IN BILLIONS OF DOLLARS)..................... $ 27 $ 25 $ 24 Return on assets............................................ 2.07% 1.37% 1.05% ====== ====== ====== EXCLUDING RESTRUCTURING-RELATED ITEMS Return on assets............................................ 2.09% 1.42% 1.32% ====== ====== ====== </TABLE> - ------------------------ (1) Reclassified to conform to the 2000 presentation. (2) Excludes restructuring-related items. Asia (excluding Japan)--which provides banking, lending and investment services, including credit and charge cards, to customers throughout the region--reported core income of $563 million in 2000, up $207 million or 58% from 1999, reflecting loan growth, particularly credit cards, higher investment product fees and deposit growth. Core income in 1999 grew $39 million or 12% from 1998, reflecting business growth and expansion as the region rebounded from weak 1998 results. Net income of $559 million in 2000, $343 million in 1999, and $253 million in 1998 included restructuring-related charges of $4 million ($5 million pretax), $13 million ($23 million pretax), and $64 million ($83 million pretax), respectively. In 2000, net foreign currency translation effects reduced revenue and expense growth by approximately 1 and 3 percentage points, respectively. In 1999, strengthening currencies across the region increased both revenue and expense growth by approximately 3 percentage points from 1998. As shown in the following table, Asia accounts grew 13% in 2000 and 20% in 1999, reflecting growth in the cards business across the region, and favorable economic conditions in most countries. <TABLE> <CAPTION> In Billions of Dollars 2000 1999 1998 -------- -------- -------- <S> <C> <C> <C> Accounts (IN MILLIONS)................................. 8.1 7.2 6.0 Average customer deposits.............................. $33.8 $30.7 $27.7 Average loans.......................................... $22.2 $21.7 $19.4 </TABLE> Revenues, net of interest expense, of $2.109 billion in 2000 increased $257 million or 14% from 1999 reflecting improvements in most countries driven by growth in cards, investment product fees, and deposits. Revenues in 1999 increased $295 million or 19% from 1998 reflecting business volume growth and higher spreads. Adjusted operating expenses of $962 million increased $19 million or 2% from 1999 reflecting increased variable compensation, including higher investment product sales commissions, and increased 26
marketing costs, offset by lower expenses in certain countries resulting from previously implemented restructuring initiatives. Expenses in 1999 increased $146 million or 18% from 1998, reflecting higher marketing spending across the region, and costs associated with new branches and additional product offerings. The provision for benefits, claims, and credit losses in 2000 was $273 million compared with $341 million in 1999 and $243 million in 1998. The net credit loss ratio was 1.16% in 2000, compared with 1.32% in 1999 and 1.12% in 1998. Loans delinquent 90 days or more were $335 million or 1.51% of loans at December 31, 2000, compared with $442 million or 1.93% at December 31, 1999 and $486 million or 2.35% at December 31, 1998. The declines in the net credit loss ratio and delinquencies from 1999 reflect favorable economic conditions in most countries. LATIN AMERICA <TABLE> <CAPTION> In Millions of Dollars 2000 1999(1) 1998(1) -------- -------- -------- <S> <C> <C> <C> TOTAL REVENUES, NET OF INTEREST EXPENSE..................... $1,941 $1,970 $1,579 Adjusted operating expenses(2).............................. 1,307 1,194 1,066 Provisions for benefits, claims and credit losses........... 335 447 265 ------ ------ ------ CORE INCOME BEFORE TAXES.................................... 299 329 248 Income taxes................................................ 91 107 99 ------ ------ ------ CORE INCOME................................................. 208 222 149 Restructuring-related items, after-tax...................... (31) (27) (67) ------ ------ ------ NET INCOME.................................................. $ 177 $ 195 $ 82 ====== ====== ====== Average assets (IN BILLIONS OF DOLLARS)..................... $ 12 $ 14 $ 11 Return on assets............................................ 1.48% 1.39% 0.75% ====== ====== ====== EXCLUDING RESTRUCTURING-RELATED ITEMS Return on assets............................................ 1.73% 1.59% 1.35% ====== ====== ====== </TABLE> - ------------------------ (1) Reclassified to conform to the 2000 presentation. (2) Excludes restructuring-related items. Latin America--which provides banking, lending and investment services, including credit and charge cards, to customers throughout the region--reported core income of $208 million in 2000, down $14 million or 6% from 1999, reflecting reduced earnings related to Confia and lower business volumes due to weak economic conditions, partially offset by lower credit costs and an increase in earnings from Credicard, a 33%-owned Brazilian Card affiliate. Core income of $222 million in 1999 increased from $149 million in 1998 primarily reflecting an increase in earnings from Credicard, and the effect of certain acquisitions, partially offset by higher credit costs. Net income of $177 million in 2000, $195 million in 1999, and $82 million in 1998 included restructuring-related charges of $31 million ($45 million pretax), $27 million ($42 million pretax), and $67 million ($88 million pretax), respectively. The net effect of foreign currency translation in 2000 was minimal. The Brazilian currency devaluation in 1999 significantly contributed to the foreign currency translation effects that reduced core income by approximately $37 million in 1999 and reduced revenue and expense growth by approximately 10 and 7 percentage points, respectively, from 1998. In 2000, minimal growth in accounts and deposits reflected economic conditions in certain countries. The decline in average loans reflects the 2000 first quarter auto loan portfolio sale in Puerto 27
Rico and credit risk management initiatives. In 1999, growth in accounts, customer deposits and loans reflects acquisitions in the region with deposit growth also reflecting a "flight to quality" in the region. <TABLE> <CAPTION> In Billions of Dollars 2000 1999 1998 -------- -------- -------- <S> <C> <C> <C> Accounts (IN MILLIONS)................................. 9.1 8.8 7.3 Average customer deposits.............................. $13.7 $13.5 $10.2 Average loans.......................................... $ 7.2 $ 8.0 $ 7.8 </TABLE> Revenues, net of interest expense, of $1.941 billion in 2000 decreased $29 million or 1% from 1999 as higher Credicard earnings were offset by reduced revenues from Confia and business volume declines in certain countries, including the effect of the auto loan portfolio sale in Puerto Rico. Revenues in 1999 increased $391 million or 25% from 1998, reflecting acquisitions in the region and increased Credicard earnings. Adjusted operating expenses of $1.307 billion increased $113 million or 9% from 1999 reflecting costs associated with new business initiatives, strategy changes in certain countries, and acquisitions in the region. Expenses in 1999 grew $128 million or 12% from 1998 reflecting acquisitions. The provisions for benefits, claims and credit losses was $335 million in 2000 compared to $447 million in 1999 and $265 million in 1998. The adoption of revised FFIEC write-off policies in 2000 added $41 million to net credit losses, which were charged against the allowance for credit losses, and 56 basis points to the net credit loss ratio. The net credit loss ratio was 4.62% (4.06% excluding the effect of FFIEC policy revisions) in 2000, compared to 5.30% in 1999 and 3.07% in 1998. Loans delinquent 90 days or more of $250 million or 3.66% of loans at December 31, 2000 decreased from $320 million or 4.10% at December 31, 1999 and $288 million or 3.60% at December 31, 1998. The decline in delinquent loans in 2000 from 1999 reflects additional write-offs related to the adoption of revised FFIEC policies. CENTRAL & EASTERN EUROPE, MIDDLE EAST & AFRICA <TABLE> <CAPTION> In Millions of Dollars 2000 1999(1) 1998(1) -------- -------- -------- <S> <C> <C> <C> TOTAL REVENUES, NET OF INTEREST EXPENSE............... $ 418 $ 337 $ 273 Adjusted operating expenses(2)........................ 289 230 206 Provision for credit losses........................... 33 32 37 ----- ----- ----- CORE INCOME BEFORE TAXES.............................. 96 75 30 Income taxes.......................................... 37 29 12 ----- ----- ----- CORE INCOME........................................... 59 46 18 Restructuring-related items, after-tax................ 4 (17) -- ----- ----- ----- NET INCOME............................................ $ 63 $ 29 $ 18 ===== ===== ===== Average assets (IN BILLIONS OF DOLLARS)............... $ 3 $ 3 $ 3 Return on assets...................................... 2.10% 0.97% 0.60% ===== ===== ===== EXCLUDING RESTRUCTURING-RELATED ITEMS Return on assets...................................... 1.97% 1.53% 0.60% ===== ===== ===== </TABLE> - ------------------------ (1) Reclassified to conform to the 2000 presentation. (2) Excludes restructuring-related items. 28
Central & Eastern Europe, Middle East & Africa (CEEMEA--including India and Pakistan)--which provides banking, lending and investment services, including credit and charge cards, to customers throughout the region--reported core income of $59 million in 2000, up $13 million or 28% from 1999, and in 1999 core income was up $28 million or 156% from 1998, reflecting growth across the region, particularly India. Net income of $63 million in 2000 and $29 million in 1999 included restructuring-related items of $4 million ($5 million pretax) and ($17) million (($27) million pretax), respectively. Core income in 1999 includes a $16 million ($25 million pretax) gain related to an investment in an affiliate. The net effect of foreign currency translation reduced revenue growth by approximately 5 and 4 percentage points and expense growth was reduced by approximately 6 and 5 percentage points in 2000 and 1999, respectively. As shown in the following table, CEEMEA reported 33% account growth in 2000 and 31% in 1999 primarily reflecting growth in credit cards and customer deposits as franchise growth efforts continue across the region. <TABLE> <CAPTION> In Billions of Dollars 2000 1999 1998 -------- -------- -------- <S> <C> <C> <C> Accounts (IN MILLIONS).................................... 2.8 2.1 1.6 Average customer deposits................................. $3.9 $3.6 $3.4 Average loans............................................. $1.9 $1.7 $1.4 </TABLE> Revenues, net of interest expense, of $418 million in 2000 increased $81 million or 24% from 1999 reflecting strong growth in cards and deposits, and higher spreads. Revenues in 1999 were up $64 million or 23% from 1998, including the $25 million gain in 1999 related to an investment in an affiliate. Adjusted operating expenses of $289 million increased $59 million or 26% from 1999 and in 1999 increased $24 million or 12% from 1998, reflecting higher business volumes and costs associated with franchise growth in the region. The provision for credit losses was $33 million in 2000 compared with $32 million in 1999 and $37 million in 1998. The adoption of revised FFIEC write-off policies in 2000 added $3 million to net credit losses, which were charged against the allowance for credit losses, and 15 basis points to the net credit loss ratio. The net credit loss ratio was 1.95% (1.80% excluding the effect of FFIEC policy revisions) in 2000, down from 1.96% in 1999 and 2.63% in 1998. Loans delinquent 90 days or more of $32 million or 1.37% of loans at December 31, 2000 decreased from $46 million or 2.25% at December 31, 1999 and $44 million or 2.97% at December 31, 1998. e-CONSUMER <TABLE> <CAPTION> In Millions of Dollars 2000 1999(1) 1998(1) -------- -------- -------- <S> <C> <C> <C> TOTAL REVENUES, NET OF INTEREST EXPENSE.............. $ 172 $ 108 $ 77 Adjusted operating expenses.......................... 497 295 199 ----- ----- ---- LOSS BEFORE TAX BENEFITS............................. (325) (187) (122) Income tax benefits.................................. (123) (76) (47) ----- ----- ---- NET LOSS............................................. $(202) $(111) $(75) ===== ===== ==== </TABLE> - ------------------------ (1) Reclassified to conform to the 2000 presentation. 29
e-Consumer--the business responsible for developing and implementing Global Consumer Internet financial services products and e-commerce solutions--reported net losses of $202 million in 2000, compared to $111 million in 1999 and $75 million in 1998. Revenues, net of interest expense, were $172 million in 2000, up from $108 million in 1999 and $77 million in 1998. Revenues in 2000 include gains related to the sale of certain Internet/e-commerce investments. Adjusted operating expenses of $497 million increased from $295 million and $199 million in 1999 and 1998, respectively, reflecting continued investment spending on Internet financial services. Expenses in 2000 include charges related to the termination of certain contracts and other initiatives. OTHER CONSUMER <TABLE> <CAPTION> In Millions of Dollars 2000 1999(1) 1998(1) -------- -------- -------- <S> <C> <C> <C> TOTAL REVENUES, NET OF INTEREST EXPENSE............... $(11) $126 $164 Adjusted operating expenses(2)........................ 142 222 254 Provision for credit losses........................... -- 25 24 ---- ---- ---- LOSS BEFORE TAX BENEFITS.............................. (153) (121) (114) Income tax benefits................................... (55) (46) (47) ---- ---- ---- LOSS.................................................. (98) (75) (67) Restructuring-related items, after-tax................ 2 (12) -- ---- ---- ---- NET LOSS.............................................. $(96) $(87) $(67) ==== ==== ==== </TABLE> - ------------------------ (1) Reclassified to conform to the 2000 presentation. (2) Excludes restructuring-related items. Other Consumer--which includes certain treasury operations and global marketing and other programs--reported losses before restructuring-related items of $98 million in 2000, compared with $75 million in 1999 and $67 million in 1998 reflecting lower treasury results, offset by lower marketing costs and reduced staff levels. Expenses in 2000 also reflect costs associated with the termination of certain global distribution initiatives. The 1999 and 1998 revenues, expenses and provision for credit losses include the results of the private label cards business that was discontinued in early 2000. The net loss of $96 million in 2000 and $87 million in 1999 included restructuring-related items of $2 million ($2 million pretax) and ($12) million (($19) million pretax), respectively. CONSUMER PORTFOLIO REVIEW In the consumer portfolio, credit loss experience is often expressed in terms of annualized net credit losses as a percentage of average loans. Pricing and credit policies reflect the loss experience of each particular product. Consumer loans are generally written off no later than a predetermined number of days past due on a contractual basis, or earlier in the event of bankruptcy. The number of days is set at an appropriate level according to loan product and country. The table below summarizes delinquency and net credit loss experience in both the managed and on-balance sheet loan portfolios in terms of loans 90 days or more past due, net credit losses, and as a percentage of related loans. 30
CONSUMER LOAN DELINQUENCY AMOUNTS, NET CREDIT LOSSES, AND RATIOS <TABLE> <CAPTION> TOTAL AVERAGE In Millions of Dollars, LOANS 90 DAYS OR MORE PAST DUE(1) LOANS LOANS NET CREDIT LOSSES(1) Except Loan Amounts -------- ------------------------------ -------- ------------------------------ in Billions 2000 2000 1999 1998 2000 2000 1999 1998 -------- -------- -------- -------- -------- -------- -------- -------- <S> <C> <C> <C> <C> <C> <C> <C> <C> Citibanking North America................ $ 7.3 $ 35 $ 55 $ 93 $ 7.0 $ 64 $ 90 $ 106 Ratio.................... 0.48% 0.78% 1.25% 0.91% 1.22% 1.39% Mortgage Banking......... 41.7 828 696 625 35.4 46 43 75 Ratio.................... 1.99% 2.31% 2.44% 0.13% 0.16% 0.31% North America Bankcards.............. 86.8 1,140 1,066 1,001 78.5 3,022 3,158 3,142 Ratio.................... 1.31% 1.44% 1.45% 3.85% 4.54% 5.32% Other Cards.............. 1.7 6 21 19 1.8 65 49 38 Ratio.................... 0.35% 1.31% 1.27% 3.76% 3.00% 2.44% CitiFinancial............ 20.1 277 203 171 17.4 340 295 291 Ratio.................... 1.38% 1.31% 1.44% 1.96% 2.18% 2.75% Associates(2)............ 68.1 1,622 1,461 961 61.8 2,389 2,018 1,484 Ratio.................... 2.38% 2.62% 2.15% 3.87% 3.88% 3.71% Western Europe........... 15.4 782 868 911 14.6 237 249 240 Ratio.................... 5.09% 5.75% 5.69% 1.62% 1.64% 1.61% Japan.................... 3.6 8 11 12 3.2 20 12 8 Ratio.................... 0.22% 0.49% 1.01% 0.63% 0.76% 0.98% Asia..................... 22.2 335 442 486 22.2 257 286 218 Ratio.................... 1.51% 1.93% 2.35% 1.16% 1.32% 1.12% Latin America............ 6.8 250 320 288 7.2 332 419 239 Ratio.................... 3.66% 4.10% 3.60% 4.62% 5.30% 3.07% CEEMEA................... 2.3 32 46 44 1.9 38 32 37 Ratio.................... 1.37% 2.25% 2.97% 1.95% 1.96% 2.63% The Citigroup Private Bank(3)................ 26.4 61 120 193 24.2 23 19 5 Ratio.................... 0.23% 0.54% 1.14% 0.09% 0.10% 0.03% Other.................... 0.4 -- 4 10 0.3 -- 23 23 ------ ------- ------ ------ ------ ------- ------- ------- TOTAL MANAGED............ 302.8 5,376 5,313 4,814 275.5 6,833 6,693 5,906 RATIO.................... 1.78% 2.07% 2.13% 2.48% 2.80% 2.90% ------ ------- ------ ------ ------ ------- ------- ------- Securitized receivables............ (60.6) (1,012) (916) (717) (57.0) (2,228) (2,479) (2,194) Loans held for sale...... (13.3) (110) (32) (38) (8.7) (182) (121) (134) ------ ------- ------ ------ ------ ------- ------- ------- CONSUMER LOANS........... $228.9 $ 4,254 $4,365 $4,059 $209.8 $ 4,423 $ 4,093 $ 3,578 RATIO.................... 1.86% 2.24% 2.35% 2.11% 2.24% 2.23% ====== ======= ====== ====== ====== ======= ======= ======= </TABLE> - ------------------------ (1) The ratios of 90 days or more past due and net credit losses are calculated based on end-of-period and average loans, respectively, both net of unearned income. (2) Associates results are reported in the Associates segment. (3) The Citigroup Private Bank results are reported as part of the Global Investment Management and Private Banking segment. 31
CONSUMER LOAN BALANCES, NET OF UNEARNED INCOME <TABLE> <CAPTION> END OF PERIOD AVERAGE ------------------------------ ------------------------------ In Billions of Dollars 2000 1999 1998 2000 1999 1998 -------- -------- -------- -------- -------- -------- <S> <C> <C> <C> <C> <C> <C> TOTAL MANAGED............................... $302.8 $257.2 $225.9 $275.5 $239.3 $203.6 Securitized receivables..................... (60.6) (58.0) (47.8) (57.0) (51.0) (38.2) Loans held for sale......................... (13.3) (4.6) (5.1) (8.7) (5.5) (4.7) ------ ------ ------ ------ ------ ------ CONSUMER LOANS.............................. $228.9 $194.6 $173.0 $209.8 $182.8 $160.7 ====== ====== ====== ====== ====== ====== </TABLE> Total delinquencies 90 days or more past due in the managed portfolio were $5.376 billion with a related delinquency ratio of 1.78% at December 31, 2000, compared with $5.313 billion or 2.07% at December 31, 1999 and $4.814 billion or 2.13% at December 31, 1998. Total managed net credit losses in 2000 were $6.833 billion and the related loss ratio was 2.48%, compared with $6.693 billion and 2.80% in 1999 and $5.906 billion and 2.90% in 1998. For a discussion on trends by business, see business discussions on pages 13-30. Citigroup's allowance for credit losses of $8.961 billion is available to absorb all probable credit losses inherent in the portfolio. For analytical purposes only, the portion of Citigroup's allowance for credit losses attributed to the consumer portfolio was $4.973 billion as of December 31, 2000, down from $5.158 billion in 1999 and up from $4.879 billion as of December 31, 1998. The allowance as a percentage of loans on the balance sheet was 2.17% as of December 31, 2000, down from 2.65% at December 31, 1999 reflecting improved credit performance in the portfolio. The attribution of the allowance is made for analytical purposes only and may change from time to time. <TABLE> <CAPTION> In Millions of Dollars 2000 1999 1998 -------- -------- -------- <S> <C> <C> <C> Allowance for credit losses(1).............................. $4,973 $5,158 $4,879 As a percentage of total consumer loans..................... 2.17% 2.65% 2.82% </TABLE> - ------------------------ (1) Includes $1.746 billion, $1.727 billion and $1.569 billion at December 31 2000, 1999, and 1998, respectively, related to Associates. GLOBAL CONSUMER OUTLOOK The statements below are forward-looking statements within the meaning of the Private Securities Litigation Reform Act. See "Forward-Looking Statements" on page 59. BANKING/LENDING CITIBANKING NORTH AMERICA. 2000 was a year of continued success. Citibanking invested in programs and staff to improve operations and customer service while continuing to reduce overall expenses. In addition, Citibanking implemented its needs based sales approach through Citipro, a complimentary financial needs analysis that assesses customers' needs and recommends appropriate financial products to meet those needs. In 2001, Citibanking expects business volumes to increase, including loans, which have declined in the past two years, however, lower interest rates may narrow spreads. On February 12, 2001, Citigroup agreed to acquire European American Bank (EAB), a state-chartered bank with $11.5 billion in deposits, $15.4 billion in assets and 97 branches in the New York area. The transaction, which upon completion will be immediately accretive to Citigroup's earnings, is subject to customary bank regulatory approvals and is expected to close in mid-2001. 32
MORTGAGE BANKING. In 2000, Mortgage Banking, increased core income by 21% over 1999. New loan production was 13% higher than 1999 as mortgage market share increased and was supported by the cross-sell success of Salomon Smith Barney financial consultants selling approximately $1 billion of mortgage products. Student Loans retained its top industry ranking for volume and continued to expand its Internet presence by sourcing 40% of new loan applications through its website versus 16% in 1999. In 2001, core income should improve over 2000 if increased refinancing activity occurs as a result of lower interest rates, by the development of Internet-based partnerships, and additional e-commerce volumes. Credit costs are not expected to improve further from 2000, due to volume growth and U.S. economic conditions. NORTH AMERICA CARDS. The Cards business achieved improved performance in 2000 despite a challenging interest rate environment and continuing competitive pressures. Despite lower spreads, return on managed assets increased as both net credit loss and expense ratios improved. In 2001, the business is expected to show continued growth as lower interest rates should help improve spreads; however, credit costs and delinquencies are expected to increase from 2000 levels as a result of the U.S. economic environment and continued business growth. CITIFINANCIAL. The addition of approximately 100 new branches, successful integration of prior years acquisitions, and the continuation of originating new volume through Citigroup affiliates contributed to the growth of the business in 2000. CitiFinancial will continue to pursue growth by expanding and developing new channels and diversifying its product offerings. As in the past, cross- selling opportunities among Citigroup affiliates will continue. The slowing U.S. economy may mitigate growth in 2001 and credit performance is expected to deteriorate as previous portfolio additions mature and the uncertain economic environment persists. INSURANCE INDUSTRY A variety of factors continue to affect the property and casualty insurance market and the Company's core business outlook, including a firming of pricing in the commercial lines marketplace as evidenced by price increases, a continuing highly competitive personal lines marketplace, inflationary pressures on loss cost trends including medical inflation and increasing auto loss costs, rising reinsurance costs and litigation. Changes in the general interest rate environment affect the return received by the insurance subsidiaries on newly invested and reinvested funds. While a rising interest rate environment enhances the returns available, it reduces the market value of existing fixed maturity investments and the availability of gains on disposition. A decline in interest rates reduces the return available on investment of funds, but creates the opportunity for realized investment gains on disposition of fixed maturity investments. Certain social, economic, political, and litigation issues have led to an increased number of legislative and regulatory proposals aimed at addressing the cost and availability of certain types of insurance, as well as the claim and coverage obligations of insurers. While most of these provisions have failed to become law, these initiatives may continue as legislators and regulators try to respond to the public availability, affordability, and claims concerns, and the resulting laws, if any, could adversely affect the Company's ability to write business with appropriate returns. TRAVELERS LIFE AND ANNUITY should benefit from growth in the aging population who are becoming more focused on the need to accumulate adequate savings for retirement, to protect these savings and to plan for the transfer of wealth to the next generation. Travelers Life and Annuity is well positioned to take advantage of the favorable long-term demographic trends through its strong financial position, widespread brand name recognition and broad array of competitive life, annuity and retirement and estate planning products sold through established distribution channels. 33
However, competition in both product pricing and customer service is intensifying. While there has been some consolidation within the industry, other financial services organizations are increasingly involved in the sale and/or distribution of insurance products. Financial Services reform is likely to have many effects on the life insurance industry and the results will take time to assess; however, heightened competition is expected. Also, the annuities business is interest rate and market sensitive, and swings in interest rates and equity markets could influence sales and retention of in-force policies. In order to strengthen its competitive position, Travelers Life and Annuity expects to maintain a current product portfolio, further diversify its distribution channels, and retain its healthy financial position through strong sales growth and maintenance of an efficient cost structure. PRIMERICA. During the last few years, primerica has instituted programs including sales and product training that are designed to maintain high compliance standards, increase the number of producing agents and customer contacts and, ultimately, increase production levels. Additionally, increased effort has been made to provide all Primerica customers full access to all Primerica marketed lines. Insurance in force continues to grow. A continuation of these trends could positively influence future operations. Primerica continues to expand cross selling with other Company subsidiaries of products such as loans, mutual funds, and annuity products. PERSONAL LINES strategy includes control of operating expenses to improve competitiveness and profitability, growth in sales primarily through independent agents and selective expansion of alternative marketing channels to broaden distribution to a wider customer base. Personal Lines is continuing to grow its nonstandard auto insurance to broaden its product capabilities. These growth strategies also provide opportunities to leverage the existing cost structure and achieve economies of scale. In addition, Personal Lines continues to take action to control its exposure to catastrophe losses, including limiting the writing of new homeowners business in certain markets and implementing price increases in certain hurricane-prone areas, subject to restrictions imposed by insurance regulatory authorities. The personal auto insurance marketplace remains highly competitive as some personal auto carriers have been reluctant to increase prices despite increases in loss cost trends due to inflationary pressures. These trends are expected to continue into 2001. Personal Lines will continue to emphasize underwriting discipline in this competitive marketplace and continue to pursue its strategy of increases in auto rates to offset increases in loss cost trends. Market conditions for homeowners insurance have remained stable with the industry experiencing modest rate increases. Personal Lines expects homeowners rate increases to continue in 2001. Homeowners loss cost trends continue to increase at modest levels, reflecting inflationary pressures and the increased frequency of weather-related losses. The property and casualty insurance industry continues to be reshaped by consolidations. The Company's strategic objectives are to enhance its position as a consistently profitable market leader and to become a low-cost provider of property and casualty insurance in the United States, as the industry consolidates. In relation to the Company's objective of being a low-cost provider of property and casualty insurance, an emphasis on claim payout and performance and enhanced productivity efforts is expected to continue. INTERNATIONAL CONSUMER WESTERN EUROPE. The outlook for the Western Europe region appears to be favorable. The economic convergence of Eurozone is progressing and increasing its breadth with the inclusion of Greece as of January 2001. In 2001, the business will continue to focus on the development of Internet banking and investment products, along with consumer finance and cards. As social reforms take hold, an increasing recognition on the part of consumers that they will need to fund their own retirements is fueling a substantial investment product opportunity. Citigroup's strengths in distribution and consistent 34
global advertising and marketing efforts will provide a strong platform to expand beyond the current European presence. JAPAN. The acquisition of Diners Japan in 2000 expanded the country's loan portfolio and contributed to both revenue and income growth. Growth was reported across all product categories in 2000 and is planned to continue in 2001. In 2001, the business focus will be on expanding cards, revolving credit, and investment products. While competitive pressures are expected to continue and compress spreads, the business plans to grow through volume and fee revenue increases. Credit costs are expected to increase modestly due to volume growth. CENTRAL & EASTERN EUROPE, MIDDLE EAST & AFRICA. The business experienced strong momentum in 2000 with a 28% increase in core income, driven by an expanded presence in the region and the rapid emergence of a middle class with increasing financial services needs. In 2000, revenue and account growth was driven by leadership in cards across the region, the development of the consumer finance franchise in key markets, and increased focus on investment and insurance product sales. The priorities for 2001 will be the growth of market share in established markets, further integration of acquisitions in India, Poland and Hungary, continued development of the new franchises, and the launch of innovative products and services using the Internet and mobile channels. The business plans to grow in 2001, despite increased competitive pressures. ASIA. The region recorded strong financial performance in 2000, driven by volume growth, expense management initiatives and favorable credit performance, despite pricing compression and currency devaluation in a number of countries. Credit costs in 2000 were low compared to previous years, and are expected to increase modestly in 2001 to reflect business growth. The business focus in 2001 will be on continuing the 2000 momentum to expand the cards, revolving credit, and investment products portfolios. LATIN AMERICA. In 2000, the region continued to experience weak economic conditions in some of its countries. Tight controls in loan underwriting and collections resulted in improved credit performance, offsetting a portion of the revenue weakness. The termination and subsequent partial restoration of a subsidy from the Mexican government also impacted results. The business will continue to focus on products with reduced risk and population segments and continue to implement operating expense reduction programs. The partial restoration of the subsidy from the Mexican government coupled with expected improvement in the economic climate and stable credit costs should position the Latin American region for growth in 2001. e-CONSUMER. In 2000 the business launched several new product initiatives, including Citibank Online, C2it and MyCiti, and entered into a strategic alliance with America Online. Expenses in 2000 included one-time charges related to the termination of certain contracts and other initiatives. In 2001, the business will continue to develop and refine product offerings and focus on strategic alliances that will extend Citigroup's ability to deliver financial services via the Internet and improve cross selling opportunities with other Citigroup businesses. These efforts should position Citigroup to grow with the digital economy and improve product distribution and customer service capabilities. 35
GLOBAL CORPORATE AND INVESTMENT BANK <TABLE> <CAPTION> In Millions of Dollars 2000 1999(1) 1998(1) -------- -------- -------- <S> <C> <C> <C> TOTAL REVENUES, NET OF INTEREST EXPENSE..................... $32,094 $27,505 $22,441 Adjusted operating expenses(2).............................. 18,205 15,733 14,575 Provisions for benefits, claims, and credit losses.......... 4,086 3,857 4,163 ------- ------- ------- CORE INCOME BEFORE TAXES AND MINORITY INTEREST.............. 9,803 7,915 3,703 Income taxes................................................ 3,365 2,752 1,214 Minority interest, after-tax................................ 68 167 143 ------- ------- ------- CORE INCOME................................................. 6,370 4,996 2,346 Restructuring-related items, after-tax...................... (11) 121 26 ------- ------- ------- NET INCOME(3)............................................... $ 6,359 $ 5,117 $ 2,372 ======= ======= ======= </TABLE> - ------------------------ (1) Reclassified to conform to the 2000 presentation. (2) Excludes restructuring-related items. (3) The 1999 period excludes cumulative effect of accounting changes. Citigroup's Global Corporate and Investment Bank business serves corporations, financial institutions, governments, investors and other participants in capital markets throughout the world and consists of Salomon Smith Barney and The Global Relationship Bank, Emerging Markets Corporate Banking and the Commercial Lines business of TPC. SSB is one of the largest investment banking, underwriting and brokerage firms in the world, with a significant presence in most major financial products. GRB focuses on providing banking, capital markets and transaction processing services to large multinational companies in 22 developed countries. EM Corporate provides a wide array of banking products and services to multinational and large and emerging local corporations in 78 emerging market countries. TPC is one of the largest property and casualty insurers in the United States offering, among other products, workers' compensation, commercial multi-peril, commercial auto, other liability, fidelity and surety and property and other lines, which it distributes through independent agents and brokers. The Global Corporate and Investment Bank reported core income of $6.370 billion in 2000, up $1.374 billion or 28% from 1999, reflecting continued strong growth across the franchise. The growth in core income was led by SSB & GRB, up $699 million to $3.688 billion, EM Corporate, up $448 million to $1.610 billion, and Commercial Lines, up $227 million to $1.072 billion. Core income growth at SSB & GRB was driven by double-digit revenue growth across most businesses partially offset by increases in expenses and the provision for credit losses. EM Corporate's core income growth was driven by broad-based growth in revenues, tight expense control management and improved credit. Commercial Lines growth primarily reflects incremental earnings from the minority interest buyback, revenue growth from rate increases achieved during the year, higher fee income and lower catastrophe losses. Net income of $6.359 billion, $5.117 billion (excluding a charge of $127 million for the cumulative effect of accounting changes) and $2.372 billion in 2000, 1999 and 1998, respectively, included a restructuring-related charge of $11 million ($18 million pretax) in 2000 and net restructuring-related credits of $121 million ($207 million pretax) in 1999 and $26 million ($62 million pretax) in 1998. Restructuring-related items in 1999 consist mainly of a release of the 1997 restructuring reserve that resulted from SSB's reassessment of space needs. Restructuring-related items in 1998 included a reduction of the 1997 restructuring reserve of $191 million ($324 million pretax) that resulted from SSB's favorable negotiations on a sublease on the Seven World Trade Center location. Also included in 36
1998 is a restructuring charge of $165 million ($262 million pretax) related to initiatives designed to realize synergies and operating efficiencies. See Note 15 of Notes to Consolidated Financial Statements for further discussion of restructuring-related items. SALOMON SMITH BARNEY AND THE GLOBAL RELATIONSHIP BANK <TABLE> <CAPTION> In Millions of Dollars 2000 1999(1) 1998(1) -------- -------- -------- <S> <C> <C> <C> TOTAL REVENUES, NET OF INTEREST EXPENSE..................... $20,316 $16,893 $12,323 Adjusted operating expenses(2).............................. 14,427 12,176 11,006 Provision (benefit) for credit losses....................... 161 6 (27) ------- ------- ------- CORE INCOME BEFORE TAXES AND MINORITY INTEREST.............. 5,728 4,711 1,344 Income taxes................................................ 2,045 1,722 483 Minority interest, after-tax................................ (5) -- -- ------- ------- ------- CORE INCOME................................................. 3,688 2,989 861 Restructuring-related items, after-tax...................... -- 131 76 ------- ------- ------- NET INCOME(3)............................................... $ 3,688 $ 3,120 $ 937 ======= ======= ======= </TABLE> - ------------------------ (1) Reclassified to conform to the 2000 presentation. (2) Excludes restructuring-related items. (3) The 1999 period excludes cumulative effect of accounting changes. Core income was $3.688 billion in 2000 compared to $2.989 billion in 1999 and $861 million in 1998. Salomon Smith Barney and The Global Relationship Bank's earnings during 2000 reflect double-digit revenue growth across most businesses partially offset by increases in expenses and the provision for credit losses, including the impact of acquisitions in 2000. Core income of $2.989 billion in 1999 increased $2.128 billion compared to 1998, primarily reflecting a rebound from 1998 economic turmoil and strong revenue growth in 1999. Net income of $3.120 billion and $937 million in 1999 and 1998, respectively, included restructuring-related credits of $131 million ($224 million pretax) and $76 million ($135 million pretax), respectively. See Note 15 of Notes to Consolidated Financial Statements for a discussion of the restructuring-related items. On May 1, 2000, SSB completed the approximately 1.36 billion British Pound ($2.2 billion) acquisition of the global investment banking business and related net assets of Schroders PLC (Schroders), including all corporate finance, financial markets and securities activities. The combined European operations of SSB are now known as Schroder Salomon Smith Barney. During the second quarter of 2000, GRB strengthened its position in the U.S. leasing market through the purchase of Copelco. 37
Revenues for the years ended December 31 by category were as follows: <TABLE> <CAPTION> In Millions of Dollars 2000 1999 1998 -------- -------- -------- <S> <C> <C> <C> Commissions and fees........................................ $ 5,178 $ 4,365 $ 4,203 Investment banking.......................................... 4,087 3,350 2,549 Principal transactions...................................... 4,396 3,717 719 Asset management and administration fees(1)................. 2,618 2,024 1,356 Interest and dividend income, net........................... 3,523 3,399 3,315 Other income................................................ 514 38 181 ------- ------- ------- TOTAL REVENUES, NET OF INTEREST EXPENSE..................... $20,316 $16,893 $12,323 ======= ======= ======= </TABLE> - ------------------------ (1) Excludes the revenues of SSB Asset Management which are reported in the Citigroup Asset Management segment. Revenues, net of interest expense, increased 20% in 2000 to $20.316 billion from $16.893 billion in 1999 which, in turn, increased 37% from $12.323 billion in 1998. The 2000 increase compared to 1999 reflects continued strong growth across all businesses. The 1999 increase compared to 1998 primarily reflects strong growth in all businesses as well as a rebound from the 1998 economic turmoil. Commissions and fees revenue increased 19% in 2000 to $5.178 billion from $4.365 billion in 1999 and $4.203 billion in 1998. The 2000 and 1999 increases reflect growth in sales of listed and over-the-counter securities along with increased mutual fund commissions and GRB transaction services fees in 2000. Investment banking revenues were $4.087 billion in 2000 compared to $3.350 billion in 1999 and $2.549 billion in 1998. Growth in 2000 was primarily due to growth in equity and high grade debt underwriting and in merger and acquisition fees and was partially offset by a decline in high yield underwriting. The increase in 1999 compared to 1998 reflects higher equity and high grade debt underwriting combined with increased mergers and acquisitions fees. Principal transactions revenues were $4.396 billion in 2000, up $679 million or 18% from 1999, primarily reflecting increases in global equities, fixed income and foreign exchange. Principal transactions were $3.717 billion in 1999 compared to $719 million in 1998. In 1998 trading results were adversely impacted by significant dislocations in the global fixed income markets, including greatly reduced liquidity and widening credit spreads. Asset management and administration fees were $2.618 billion in 2000 compared to $2.024 billion in 1999 and $1.356 billion in 1998. The year-to-year increases reflect growth in assets under fee-based management. These fees include results from assets managed by the Financial Consultants and other internally managed assets as well as those that are managed through the Consulting Group. Total assets under fee-based management at December 31, were as follows: <TABLE> <CAPTION> In Billions of Dollars 2000 1999 1998 -------- -------- -------- <S> <C> <C> <C> Financial Consultant managed........................ $ 56.2 $ 43.6 $ 23.5 Consulting Group and internally managed............. 145.6 126.2 102.4 ------ ------ ------ TOTAL ASSETS UNDER FEE-BASED MANAGEMENT(1).......... $201.8 $169.8 $125.9 ====== ====== ====== </TABLE> - ------------------------ (1) Includes assets managed jointly with Citigroup Asset Management. 38
Interest and dividend income, net, was $3.523 billion in 2000 compared to $3.399 billion in 1999 and $3.315 billion in 1998. The increase in 2000 was primarily due to the addition of Copelco. The 1999 increase primarily reflects increases in margin lending to clients. Other income was $514 million in 2000 compared with $38 million in 1999, primarily reflecting an increase in ownership in Nikko Securities along with higher income from the Nikko SSB joint venture which began operations during the 1999 first quarter. Other income of $38 million in 1999 was down $143 million from 1998 primarily due to 1998 gains resulting from the disposition of real estate investments in GRB. Adjusted operating expenses were $14.427 billion in 2000 compared to $12.176 billion in 1999 and $11.006 billion in 1998. Adjusted operating expenses increased 18% in 2000 compared to 1999 primarily due to higher production related compensation and benefits expense, including the impact of the acquisitions of Schroders and Copelco in the 2000 second quarter, partially offset by the absence of year 2000 and European Economic Monetary Union expenses. Adjusted operating expenses increased 11% in 1999 over 1998 primarily due to an increase in production-related expenses, corresponding to increased revenues. The provision for credit losses was $161 million in 2000 compared to $6 million in 1999 and net benefits of $27 million in 1998. The increase in 2000 compared to 1999 was due to 2000 losses on exposures to North American health care borrowers; recoveries on real estate loans in 1999; and the inclusion of losses for Copelco, which was acquired in the second quarter of 2000. Exposures to healthcare were limited in 1999 and were significantly reduced during 2000. Copelco is an equipment lease financing business that incurred an acceptable level of credit losses in the normal course of its business. Net benefits in 1998 were primarily the result of real estate recoveries partially offset by write-offs resulting from the financial market turmoil in Russia. Cash-basis loans at December 31, 2000, 1999 and 1998 were $539 million, $304 million and $268 million while the Other Real Estate Owned (OREO) portfolio totaled $115 million, $156 million and $235 million, respectively. In all periods, cash-basis loans represent less than 0.2% of total outstanding loans and unfunded commitments. Approximately half of the increase in cash-basis loans in 2000 was due to the acquisition of Copelco, with the balance attributable to borrowers in North America. The increase in cash-basis loans in 1999 was due to an increase in North America, primarily in the health-care industry, partially offset by improvements in the real estate portfolio. The improvements in OREO in 2000 and 1999 were primarily related to the North America real estate portfolio. EMERGING MARKETS CORPORATE BANKING <TABLE> <CAPTION> In Millions of Dollars 2000 1999(1) 1998(1) -------- -------- -------- <S> <C> <C> <C> TOTAL REVENUES, NET OF INTEREST EXPENSE..................... $5,078 $4,347 $3,637 Adjusted operating expenses(2).............................. 2,332 2,124 1,994 Provision for credit losses................................. 185 347 424 ------ ------ ------ CORE INCOME BEFORE TAXES AND MINORITY INTEREST.............. 2,561 1,876 1,219 Income taxes................................................ 928 708 457 Minority interest, after-tax................................ 23 6 -- ------ ------ ------ CORE INCOME................................................. 1,610 1,162 762 Restructuring-related items, after-tax...................... (11) (10) (50) ------ ------ ------ NET INCOME.................................................. $1,599 $1,152 $ 712 ====== ====== ====== </TABLE> - ------------------------ (1) Reclassified to conform to the 2000 presentation. (2) Excludes restructuring-related items. 39
Emerging Markets Corporate Banking core income totaled $1.610 billion in 2000, up $448 million or 39% from 1999, reflecting broad based revenue growth, tight expense control management and improved credit in Asia. The improvement in core income was driven by growth across all regions with Asia up $212 million to $588 million, CEEMEA up $138 million to $393 million and Latin America up $34 million to $566 million. In June 2000, EM Corporate completed the acquisition of a majority interest in Bank Handlowy, Poland's largest corporate bank. Core income in 1999 of $1.162 billion increased $400 million or 52% from 1998, mainly reflecting Russia-related losses in 1998 and strong 1999 revenue growth in Latin America. Net income of $1.599 billion, $1.152 billion and $712 million in 2000, 1999 and 1998, respectively, included restructuring-related items of $11 million ($18 million pretax), $10 million ($17 million pretax) and $50 million ($73 million pretax), respectively. Revenues, net of interest expense, of $5.078 billion in 2000 grew $731 million or 17% compared with 1999. Revenue growth in 2000 was led by CEEMEA, up 36% from 1999, due to the acquisition of Bank Handlowy along with growth in trading-related revenues and transaction services. Asia revenues were up 10% in 2000 as growth in transaction services and higher realized investment gains were partially offset by a decline in trading-related revenues. Latin America revenues were up 6% in 2000 reflecting growth in transaction services, capital markets and asset based finance, partially offset by lower trading-related revenues. Revenues of $4.347 billion in 1999 grew $710 million or 20% compared with 1998, reflecting double-digit growth in revenues from loan products, structured products and transaction services along with an $86 million improvement in trading-related revenues. Revenues in the EM Corporate business that were attributable to business from multinational companies managed jointly with GRB grew 10% in 2000 and 17% in 1999. These revenues accounted for approximately 23%, 25% and 25% of total EM Corporate revenues in 2000, 1999 and 1998, respectively. Adjusted operating expenses in 2000 were well controlled, increasing $208 million or 10% to $2.332 billion (up 4% excluding the impact of the acquisition of Bank Handlowy). Expense growth was primarily due to investment spending to gain market share in selected emerging market countries and other volume related increases. Expenses in 1999 were $2.124 billion, up $130 million or 7% compared to 1998, as investment spending and volume growth were essentially funded by savings from prior restructuring actions and other expense initiatives. The provision for credit losses totaled $185 million and $347 million in 2000 and 1999, respectively, down $162 million and $77 million compared with the respective prior-year periods. Net credit losses in 2000 were down $185 million or 46% compared to 1999, primarily reflecting improvements in Asia, mainly China, Indonesia, Australia and Thailand, and in CEEMEA. The improvement in net credit losses in 1999, down $40 million compared to 1998, was primarily attributable to lower write-offs in Russia and Asia, partially offset by an increase in Latin America. Cash-basis loans at December 31, 2000, 1999 and 1998 were $1.147 billion, $1.044 billion and $1.062 billion, respectively. The increase in 2000 was primarily due to the acquisition of Bank Handlowy along with increases in Latin America, partially offset by improvements in Asia. The 1999 balance reflected decreases in Asia, partially offset by increases in Latin America. 40
COMMERCIAL LINES <TABLE> <CAPTION> In Millions of Dollars 2000 1999 1998 -------- -------- -------- <S> <C> <C> <C> TOTAL REVENUES, NET OF INTEREST EXPENSE..................... $6,700 $6,265 $6,481 Claims and claim adjustment expenses........................ 3,740 3,504 3,766 Total operating expenses.................................... 1,446 1,433 1,575 ------ ------ ------ INCOME BEFORE TAXES AND MINORITY INTEREST................... 1,514 1,328 1,140 Income taxes................................................ 392 322 274 Minority interest, after-tax(1)............................. 50 161 143 ------ ------ ------ NET INCOME(2)(3)............................................ $1,072 $ 845 $ 723 ====== ====== ====== </TABLE> - ------------------------ (1) See Note 2 of Notes to Consolidated Financial Statements. (2) Excludes investment gains/losses included in Investment Activities segment. (3) 1999 excludes cumulative effect of accounting changes. Commercial Lines--which offers a broad array of property and casualty insurance and insurance-related services through brokers and independent agencies--reported net income, excluding the effect of accounting changes in 1999, of $1.072 billion in 2000 compared to $845 million in 1999 and $723 million in 1998. The improvements in 2000 over 1999 reflect the incremental earnings from the minority interest buyback, rate increases, higher fee income, lower catastrophe losses, and higher net investment income and were partially offset by increased loss cost trends and lower favorable prior-year reserve development. Results for 2000 and 1999 reflect benefits resulting from legislative actions that changed the manner in which certain states finance their workers' compensation second-injury funds principally in the states of New York and Pennsylvania. The 1999 increase compared to 1998 reflects a benefit resulting from legislative actions by the states of New York and Pennsylvania and favorable prior-year reserve development. Also contributing to the earnings improvement in 1999 were lower weather-related losses and lower operating expenses, partially offset by lower fee income. On May 31, 2000, the Company completed the acquisition of the surety business of Reliance Group Holdings, Inc. (Reliance Surety) for $580 million. In the third quarter of 2000 the Company purchased the renewal rights to a portion of Reliance Group Holdings, Inc.'s commercial lines middle-market book of business (Reliance Middle Market) and also acquired the renewal rights to Frontier Insurance Group, Inc.'s (Frontier) environmental, excess and surplus lines casualty businesses and certain classes of surety business. The following table shows net written premiums by market for the three years ended December 31: <TABLE> <CAPTION> In Millions of Dollars 2000 1999 1998 -------- -------- -------- <S> <C> <C> <C> National accounts................................... $ 352 $ 488 $ 625 Commercial accounts................................. 2,099 1,816 1,800 Select accounts..................................... 1,576 1,494 1,494 Specialty accounts.................................. 1,004 610 695 ------ ------ ------ TOTAL NET WRITTEN PREMIUMS.......................... $5,031 $4,408 $4,614 ====== ====== ====== </TABLE> Commercial Lines net written premiums were $5.031 billion in 2000 compared to $4.408 billion in 1999 and $4.614 billion in 1998. Included in Specialty Accounts net written premiums in 2000 is an adjustment of $131 million due to a reinsurance transaction associated with the acquisition of the 41
Reliance Surety business. Net written premiums continues to reflect the impact of an improving rate environment as evidenced by the favorable pricing on renewal business and an increase in new business premiums. Also contributing to the net written premium increases in 2000 was the new business associated with the acquisition of the renewal rights for the Reliance Middle Market business in Commercial Accounts, and the impact of the ongoing business associated with the Reliance Surety acquisition and the new business associated with the acquisition of the renewal rights for the Frontier business in Specialty Accounts. The net written premium decrease in National Accounts was primarily due to a shift of business mix from premium-based products to fee-based products. The decrease in 1999 net written premiums reflects the highly competitive marketplace and the Company's continued disciplined approach to underwriting and risk management. Also contributing to the 1999 decrease in net written premiums in National Accounts and Specialty Accounts is the impact of additional reinsurance coverage. The slight increase in Commercial Accounts net written premiums in 1999 reflects growth in specific business segments and an improving rate environment. New business in National Accounts for 2000 was marginally lower than in 1999, reflecting the Company's continued disciplined approach to underwriting and risk management. National Accounts new business in 1999 was significantly lower than in 1998 reflecting the Company's continued disciplined approach to underwriting and risk management in the highly competitive marketplace. National Accounts business retention ratio for 2000 was moderately lower than 1999, reflecting an increase in lost business due to the renewal price increases in 2000. National Accounts business retention ratio was moderately higher in 1999 than in 1998, primarily reflecting the loss of one large account in 1998. New business in Commercial Accounts for 2000 was significantly higher than in 1999, reflecting the impact of the Reliance Middle Market business. In 1999, new business in Commercial Accounts was significantly lower than in 1998, reflecting the Company's selective underwriting policy and continued focus on obtaining profitable new business accounts. Commercial Accounts business retention ratio for 2000 was moderately lower than 1999, reflecting an increase in lost business due to the renewal price increases in 2000. The Commercial Accounts business retention ratio in 1999 was virtually the same as in 1998. For 2000, new business in Select Accounts was moderately higher than in 1999, while for 1999 new business was significantly lower than in 1998. These changes reflect the unusually low new business in 1999 resulting from the Company's selective underwriting policy in the highly competitive marketplace. The business retention ratio for 2000 was moderately lower than in 1999, reflecting an increase in lost business due to renewal price increases in 2000. Select Accounts business retention ratio in 1999 was virtually the same as 1998. There were no catastrophe losses in 2000. Catastrophe losses, net of tax and reinsurance, were $27 million in 1999 compared to $25 million in 1998. The 1999 catastrophe losses were primarily due to Hurricane Floyd in the third quarter and tornadoes in Oklahoma in the second quarter. The 1998 catastrophe losses were primarily due to Hurricane Georges in the third quarter and tornadoes in Nashville, Tennessee in the second quarter. The statutory combined ratio before policyholder dividends for Commercial Lines was 103.8% in 2000 compared to 108.6% in 1999 and 108.2% in 1998. The GAAP combined ratio before policyholder dividends for Commercial Lines was 100.1% in 2000 compared to 105.0% in1999 and 109.5% in 1998. GAAP combined ratios for Commercial Lines differ from statutory combined ratios primarily due to the deferral and amortization of certain expenses for GAAP reporting purposes only. The 2000 statutory and GAAP combined ratios include an adjustment associated with the acquisition of the Reliance Surety business. Excluding this adjustment, the 2000 statutory and GAAP combined ratios before policyholder dividends would have been 103.5% and 100.8%, respectively. The 1999 statutory combined ratio for Commercial Lines reflected the treatment of the commutation of an 42
asbestos liability to an insured. Excluding this commutation, the statutory combined ratio before policyholder dividends for 1999 would have been 106.1%. The improvement in the 2000 statutory and GAAP combined ratios before policyholder dividends, excluding the adjustments above, compared to the 1999 statutory and GAAP combined ratios before policyholder dividends was primarily due to premium growth related to rate increases as well as the impact of the ongoing business associated with the Reliance Surety acquisition and the purchase of the renewal rights for the Reliance Middle Market and Frontier businesses and lower catastrophe losses, partially offset by increased loss cost trends and lower favorable prior-year reserve development. The improvement in the 1999 statutory combined ratio before policyholder dividends, excluding the commutation, compared to 1998 was primarily due to favorable prior-year reserve development and lower weather-related losses. The decrease in the 1999 GAAP combined ratio before policyholder dividends compared to 1998 was due to favorable prior-year reserve development, lower weather- related losses, and the benefit of the New York and Pennsylvania legislative actions, partially offset by lower fee income. ENVIRONMENTAL CLAIMS The Company continues to receive claims from insureds, alleging that they are liable for injury or damage arising out of their alleged disposition of toxic substances. Mostly, these claims are due to various legislative as well as regulatory efforts aimed at environmental remediation. The Company has been, and continues to be, involved in litigation involving insurance coverage issues pertaining to environmental claims. The Company believes that certain court decisions have interpreted the insurance coverage to be broader than the original intent of the insurers and insureds. These decisions often pertain to insurance policies that were issued by the Company prior to the mid-1970s. These decisions continue to be inconsistent and vary from jurisdiction to jurisdiction. Environmental claims when submitted rarely indicate the monetary amount being sought by the claimant from the insured and the Company does not keep track of the monetary amount being sought in those few claims which indicate such a monetary amount. The Company's reserves for environmental claims are not established on a claim-by-claim basis. An aggregate bulk reserve is carried for all of the Company's environmental claims that are in the dispute process, until the dispute is resolved. This bulk reserve is established and adjusted based upon the aggregate volume of in-process environmental claims and the Company's experience in resolving such claims. At December 31, 2000, approximately 73% of the net aggregate reserve (approximately $405 million), is carried in a bulk reserve and includes unresolved as well as incurred but not reported environmental claims for which the Company has not received any specific claims. The balance, approximately 27% of the net environmental loss reserve (approximately $153 million) consists of case reserves for resolved claims. The Company's reserving methodology is preferable to one based on "identified claims" since the resolution of environmental exposures by the Company generally occurs by settlement on an insured-by-insured basis as opposed to a claim-by-claim basis. Generally, the settlement between the Company and the insured extinguishes any obligation the Company may have under any policy issued to the insured for past, present and future environmental liabilities as well as extinguishes any pending coverage litigation dispute with the insured. This form of settlement is commonly referred to as a "buy-back" of policies for future environmental liability. In addition, many of the agreements have also extinguished any insurance obligation which the Company may have for other claims, including but not limited to asbestos and other cumulative injury claims. Provisions of these agreements also include appropriate indemnities and hold harmless provisions to protect the Company. The Company's general purpose in executing such agreements is to reduce its potential environmental exposure and eliminate both the risks presented by coverage litigation with the insured and the cost of such litigation. 43
As of December 31, 2000, the Company had approximately 43,000 pending environmental-related claims tendered by 787 active policyholders. The pending environmental-related claims represent federal or state EPA-type claims as well as plaintiffs' claims alleging bodily injury and property damage due to the discharge of waste or pollutants allegedly by the policyholder. The following table displays activity for environmental losses and loss expenses and reserves for the years ended December 31: ENVIRONMENTAL LOSSES <TABLE> <CAPTION> In Millions of Dollars 2000 1999 1998 -------- -------- -------- <S> <C> <C> <C> BEGINNING RESERVES Direct...................................................... $801 $928 $1,193 Ceded....................................................... (125) (96) (74) ---- ---- ------ Net......................................................... 676 832 1,119 INCURRED LOSSES AND LOSS EXPENSES Direct...................................................... 75 139 123 Ceded....................................................... (11) (82) (73) LOSSES PAID Direct...................................................... 207 266 388 Ceded....................................................... (25) (53) (51) ---- ---- ------ ENDING RESERVES Direct...................................................... 669 801 928 Ceded....................................................... (111) (125) (96) ---- ---- ------ Net......................................................... $558 $676 $ 832 ==== ==== ====== </TABLE> As of December 31, 2000, the number of policyholders with pending coverage litigation disputes pertaining to environmental claims was 243, approximately 10% less than the number pending as of December 31, 1999, approximately 40% less than the number of pending as of December 31, 1998, as well as approximately 54% less than the number pending as of December 31, 1997. Also, in 2000, there were 158 policyholders tendering for the first time an environmental remediation-type claim to the Company. This compares to 256 policyholders doing so in 1999 and 288 policyholders in 1998. As of December 31, 2000, the Company, for approximately $1.78 billion (before reinsurance), has resolved the environmental liabilities presented by 5,286 of the 6,073 policyholders who have tendered environmental claims to the Company. This resolution comprises 87% of the policyholders who have tendered such claims. The Company generally has been successful in resolving its coverage litigation disputes and continues to reduce its potential exposure through favorable settlements with certain insureds. Generally, the settlement dollars paid in disputed coverage claims are a percentage of the total coverage sought by such insureds. The Company has direct environmental reserves (before reinsurance) of approximately $669 million, $390 million of which relates to 787 policyholders with unresolved environmental claims (the remaining 13% of the 6,073 policyholders who have tendered environmental claims); policyholders that may tender an environmental claim in the future; and for the anticipated cost of coverage litigation disputes pertaining to such environmental claims. Based upon the Company's reserving methodology and the experience of its historical resolution of environmental exposures, it believes that the environmental reserves are appropriate. 44
ASBESTOS CLAIMS In the area of asbestos claims, the Company believes that the property and casualty insurance industry has suffered from judicial interpretations that have attempted to maximize insurance availability from both a coverage and liability standpoint far beyond the intent of the contracting parties. These policies generally were issued prior to 1980. The Company continues to receive asbestos claims alleging insureds' liability from claimants' asbestos-related injuries. In 2000, the Company experienced an increase over prior years in the number of asbestos claims being tendered to the Company. In addition, the Company is continuing to evaluate the impact of recent and well-publicized filings for bankruptcy protection by certain major asbestos producers. As in the past, asbestos claims, when submitted, rarely indicate the monetary amount being sought by the claimant from the insured and the Company does not keep track of the monetary amount being sought in those few claims that indicated such a monetary amount. Based upon the Company's experience with asbestos claims, the duration period of an asbestos claim from the date of submission to resolution is approximately two years. Various classes of asbestos defendants, such as major product manufacturers, installers of asbestos, peripheral and regional product defendants as well as premises owners, continue to tender asbestos-related claims to the industry. Because each insured presents different liability and coverage issues, including whether such claims qualify as products/completed operations or non-products/operations claims, the Company evaluates those issues on an insured-by-insured basis. From a coverage standpoint, one general distinction between a products/completed operations and a non-products/operations claim is that a products/completed operations claim is typically subject to a policy aggregate limitation and a non-products/operations claim is not typically subject to such a limitation in a pre-1985 general liability policy. The Company's evaluations have not resulted in any meaningful data from which an average asbestos defense or indemnity payment may be determined. At December 31, 2000, approximately 83% (approximately $670 million) of the net asbestos reserve, represents incurred but not reported losses for which the Company has not received any specific claims. The balance, approximately 17% of the net aggregate reserve (approximately $136 million) is for pending asbestos claims. In general, the Company posts case reserves for pending asbestos claims within approximately thirty (30) business days of receipt of such claims. 45
The following table displays activity for asbestos losses and loss expenses and reserves for the years ended December 31: ASBESTOS LOSSES <TABLE> <CAPTION> In Millions of Dollars 2000 1999 1998 -------- -------- -------- <S> <C> <C> <C> BEGINNING RESERVES Direct...................................................... $1,050 $1,252 $1,363 Ceded....................................................... (223) (266) (249) ------ ------ ------ Net......................................................... 827 986 1,114 INCURRED LOSSES AND LOSS EXPENSES Direct...................................................... 187 128 135 Ceded....................................................... (137) (71) (69) LOSSES PAID Direct...................................................... 232 330 246 Ceded....................................................... (161) (114) (52) ------ ------ ------ ENDING RESERVES Direct...................................................... 1,005 1,050 1,252 Ceded....................................................... (199) (223) (266) ------ ------ ------ Net......................................................... $ 806 $ 827 $ 986 ====== ====== ====== </TABLE> UNCERTAINTY REGARDING ADEQUACY OF ENVIRONMENTAL AND ASBESTOS RESERVES It is difficult to estimate the reserves for environmental and asbestos-related claims due to the vagaries of court coverage decisions, plaintiffs' expanded theories of liability, the risks inherent in major litigation and other uncertainties, including without limitation, those which are set forth below. Conventional actuarial techniques are not used to estimate such reserves. For environmental claims, the reserving methodology includes an analysis by the Company of the exposure presented by each insured and the anticipated cost of resolution, if any, for each insured. This analysis is completed by the Company on a quarterly basis. In the course of its analysis, an assessment of the probable liability, available coverage, judicial interpretations and historical value of similar exposures is considered by the Company. In addition, due consideration is given to the many variables presented, such as the nature of the alleged activities of the insured at each site; the allegations of environmental harm at each site; the number of sites; the total number of potentially responsible parties at each site; the nature of environmental harm and the corresponding remedy at a site; the nature of government enforcement activities at each site; the ownership and general use of each site; the overall nature of the insurance relationship between the Company and the insured, including the role of any umbrella or excess insurance issued by the Company to the insured; the identification of other insurers; the potential for other available coverage, including the number of years of coverage; the role, if any, of non-environmental claims or potential non-environmental claims, in any resolution process; and the applicable law in each jurisdiction. Analysis of these and other factors, including the potential for future claims, results in the establishment of the bulk reserve. The reserving methodology for asbestos includes an evaluation of the asbestos exposure presented by each insured. The following factors are evaluated: available insurance coverage including the role of any umbrella or excess insurance issued by the Company to the insured; limits and deductibles; an analysis of each insured's potential liability; jurisdictional involvement; past and anticipated future claim activity; past settlement values of similar claims; allocated claim adjustment expense; potential role of other insurance; the role, if any, of non-asbestos claims or potential non-asbestos claims in any 46
resolution process; and applicable coverage defenses or determinations, if any, including the determination as to whether an asbestos claim is a products/completed operations or non-products/ operations claim and the available coverage, if any, for such a claim. Once the gross ultimate exposure for indemnity and allocated claim adjustment expense is determined for each insured by each policy year, a ceded reinsurance projection is calculated based on any applicable facultative and treaty reinsurance, as well as past ceded experience. Adjustments to the ceded projections also occur due to actual ceded claim experience and reinsurance collections. Historically, the Company's experience has indicated that insureds with potentially significant environmental and asbestos exposures may often have potential cumulative injury other than asbestos (CIOTA) exposures or CIOTA claims pending with the Company. Due to this experience and the fact that settlement agreements with insureds may extinguish the Company's obligations for all claims, including environmental, asbestos and CIOTA, the Company evaluates and considers the environmental and asbestos reserves in conjunction with the CIOTA reserve. The Company also compares its historical direct and net loss and expense paid experience in environmental and asbestos, year-by-year, to assess any emerging trends, fluctuations or characteristics suggested by the aggregate paid activity. The comparison includes a review of the result derived from the division of the ending direct and net reserves by last year's direct and net paid activity, also known as the survival ratio. As a result of these processes and procedures, the reserves carried for environmental and asbestos claims at December 31, 2000 are the Company's best estimate of ultimate claims and claim adjustment expenses based upon known facts and current law. However, the uncertainties surrounding the final resolution of these claims continue. These include, without limitation, any impact from the bankruptcy protection sought by various asbestos producers, a further increase or decrease in asbestos and environmental claims which cannot now be anticipated as well as the role of any umbrella or excess policies issued by the Company for such claims, the resolution or adjudication of certain disputes pertaining to asbestos non-products/operations claims in a manner inconsistent with the Company's previous assessment of such claims as well as unanticipated developments pertaining to the Company's ability to recover reinsurance for environmental and asbestos claims. It is also not possible to predict changes in the legal and legislative environment and their impact on the future development of asbestos and environmental claims. Such development will be affected by future court decisions and interpretations, as well as changes in legislation applicable to such claims. Because of these future unknowns, and the uncertainties set forth above, additional liabilities may arise for amounts in excess of the current reserves. These additional amounts, or a range of these additional amounts, cannot now be reasonably estimated, and could result in a liability exceeding reserves by an amount that would be material to the Company's operating results in a future period. However, in the opinion of the Company's management, it is not likely that these claims will have a material adverse effect on the Company's financial condition or liquidity. CUMULATIVE INJURY OTHER THAN ASBESTOS (CIOTA) CLAIMS CIOTA claims are generally submitted to the Company under general liability policies and often involve an allegation by a claimant against an insured that the claimant has suffered injuries as a result of long-term or continuous exposure to potentially harmful products or substances. Such potentially harmful products or substances include, but are not limited to, lead paint, pesticides, pharmaceutical products, silicone-based personal products, solvents and other deleterious substances. To the extent disputes exist between the Company and a policyholder regarding the coverage available for CIOTA claims, the Company resolves the disputes, where feasible, through settlements with the policyholder or through coverage litigation. Some agreements may extinguish any insurance obligation which the Company may have for other claims, including but not limited to asbestos and 47
environmental claims. Generally, the terms of a settlement agreement set forth the nature of the Company's participation in resolving CIOTA claims, the scope of coverage to be provided by the Company and contain the appropriate indemnities and hold harmless provisions to protect the Company. These settlements generally eliminate uncertainties for the Company regarding the risks extinguished, including the risk that losses would be greater than anticipated due to evolving theories of tort liability or unfavorable coverage determinations. The Company's approach also has the effect of determining losses at a date earlier than would have occurred in the absence of such settlement agreements. On the other hand, in cases where future developments are favorable to insurers, this approach could have the effect of resolving claims for amounts in excess of those that would ultimately have been paid had the claims not been settled in this manner. No inference should be drawn that because of the Company's method of dealing with CIOTA claims, its reserves for such claims are more conservatively stated than those of other insurers. At December 31, 2000, approximately 83% (approximately $667 million) of the net CIOTA reserve, represents incurred but not reported losses for which the Company has not received any specific claims. The balance, approximately 17% of the net aggregate reserve (approximately $132 million) is for pending CIOTA claims. The following table displays activity for CIOTA losses and loss expenses and reserves for the years ended December 31: CIOTA LOSSES <TABLE> <CAPTION> In Millions of Dollars 2000 1999 1998 -------- -------- -------- <S> <C> <C> <C> BEGINNING RESERVES Direct...................................................... $1,184 $1,346 $1,520 Ceded....................................................... (313) (392) (432) ------ ------ ------ Net......................................................... 871 954 1,088 INCURRED LOSSES AND LOSS EXPENSES Direct...................................................... 27 (36) (31) Ceded....................................................... (11) 28 29 LOSSES PAID Direct...................................................... 132 126 143 Ceded....................................................... (44) (51) (11) ------ ------ ------ ENDING RESERVES Direct...................................................... 1,079 1,184 1,346 Ceded....................................................... (280) (313) (392) ------ ------ ------ Net......................................................... $ 799 $ 871 $ 954 ====== ====== ====== </TABLE> COMMERCIAL PORTFOLIO REVIEW Commercial loans are identified as impaired and placed on a nonaccrual basis when it is determined that the payment of interest or principal is doubtful of collection or when interest or principal is past due for 90 days or more, except when the loan is well secured and in the process of collection. Impaired commercial loans are written down to the extent that principal is judged to be 48
uncollectible. Impaired collateral-dependent loans are written down to the lower of cost or collateral value. The following table summarizes commercial cash-basis loans and net credit losses. <TABLE> <CAPTION> In Millions of Dollars 2000 1999 1998 -------- -------- -------- <S> <C> <C> <C> CASH-BASIS LOANS AT YEAR-END The Global Relationship Bank(1)............................. $ 539 $ 304 $ 268 Emerging Markets Corporate Banking.......................... 1,147 1,044 1,062 Associates(2)............................................... 402 223 180 Insurance and Investment Activities(3)...................... 46 55 265 ------ ------ ------ TOTAL CASH-BASIS LOANS...................................... $2,134 $1,626 $1,775 ====== ====== ====== NET CREDIT LOSSES (RECOVERIES) The Global Relationship Bank(1)............................. $ 161 $ 6 $ (27) Emerging Markets Corporate Banking.......................... 221 406 446 Associates(2)............................................... 382 142 50 Investment Activities(3).................................... 7 -- (10) ------ ------ ------ TOTAL NET CREDIT LOSSES..................................... $ 771 $ 554 $ 459 ====== ====== ====== </TABLE> - ------------------------ (1) In 2000, includes $107 million in cash-basis loans and $32 million in net credit losses related to Copelco. (2) Associates results are reported in the Associates segment and exclude amounts related to manufactured housing, as such loan origination operations were discontinued in early 2000. Excluded cash-basis loans and net credit losses relating to manufactured housing were $55 million and $36 million, respectively, in 1999 and $75 million and $21 million, respectively, in 1998. (3) Investment Activities results are reported in the Investment Activities segment. Total commercial cash-basis loans were $2.134 billion, $1.626 billion and $1.775 billion at December 31, 2000, 1999 and 1998, respectively. Cash-basis loans in GRB increased $235 million to $539 million at December 31, 2000 with approximately half of the increase due to the acquisition of Copelco and the balance attributable to borrowers in North America. Associates' cash-basis loans of $402 million increased $179 million primarily in the transportation portfolio. EM Corporate cash-basis loans were $1.147 billion at December 31, 2000, up 10% from a year ago primarily due to the acquisition of Bank Handlowy along with increases in Latin America, partially offset by improvements in Asia. Total commercial cash-basis loans at December 31, 1999 declined $149 million from December 31, 1998. The decline was primarily due to a decrease in Insurance cash-basis loans resulting from a loan foreclosure during the year partially offset by increases in GRB. The increase in GRB cash-basis loans in 1999 was due to an increase in North America, primarily in the health-care industry, partially offset by improvements in the real estate portfolio. Total commercial net credit losses of $771 million in 2000 increased $217 million compared to 1999 primarily reflecting increases in Associates and GRB partially offset by a decline in EM Corporate. The increase in Associates net credit losses was primarily due to deterioration in the transportation portfolio while the GRB increase reflected 2000 losses on exposures to North American health care borrowers, recoveries on real estate loans in 1999, and the inclusion of losses for Copelco, which was acquired in the second quarter of 2000. Exposures to health care were limited in 1999 and were significantly reduced during 2000. EM Corporate net credit losses in 2000 were down $185 million, primarily reflecting improvements in Asia, mainly China, Indonesia, Australia and Thailand, and in CEEMEA. Total commercial net credit losses increased $95 million in 1999 compared to 1998, reflecting an increase in Associates, primarily related to the transportation portfolio, combined with net recoveries in GRB and Investment Activities in 1998. Partially offsetting the 1999 increases was improvement in EM Corporate primarily attributable to lower write-offs in Russia and Asia. For a further discussion of trends by business, see the business discussions on pages 36-40. 49
Citigroup's allowance for credit losses of $8.961 billion is available to absorb all probable credit losses inherent in the portfolio. For analytical purposes only, the portion of Citigroup's allowance for credit losses attributed to the commercial portfolio was $3.988 billion at December 31, 2000 compared to $3.695 billion and $3.717 billion at December 31, 1999 and 1998, respectively. The increase in the allowance in 2000 primarily reflects an increase related to the Associates' transportation portfolio and the impact of acquisitions while the decline in 1999 was primarily due to an improved credit outlook in Emerging Markets Corporate Banking. <TABLE> <CAPTION> In Billions of Dollars at Year End 2000 1999 1998 -------- -------- -------- <S> <C> <C> <C> Commercial allowance for credit losses(1)........... $3.988 $3.695 $3.717 As a percentage of total commercial loans........... 2.89% 3.07% 3.30% </TABLE> - ------------------------ (1) Includes $621 million, $447 million and $409 million at December 31, 2000, 1999 and 1998, respectively, related to Associates. GLOBAL CORPORATE AND INVESTMENT BANK OUTLOOK The statements below are forward-looking statements within the meaning of the Private Securities Litigation Reform Act. See "Forward-Looking Statements" on page 59. The businesses of Global Corporate and Investment Bank are significantly affected by the levels of activity in the global capital markets which, in turn, are influenced by macro-economic and political policies and developments, among other factors, in the 100 countries in which the businesses operate. Global economic and market events can have both positive and negative effects on the revenue performance of the businesses and can negatively affect credit performance. In particular, levels of principal transactions, realized gains from sales of investments, and gains from asset sales may fluctuate in the future as a result of market and asset-specific factors. In 1998, the global capital markets experienced severe economic turmoil. Currency crises sparked economic turmoil that began in Asia, spread to Russia and in early 1999 to Latin America. In response, the businesses undertook initiatives at that time to reduce the risk profile, particularly in SSB's global arbitrage operation. Losses on commercial lending activities and the level of cash-basis loans can vary widely with respect to timing and amount, particularly within any narrowly defined business or loan type. SALOMON SMITH BARNEY AND THE GLOBAL RELATIONSHIP BANK. In 2000, market share improvements were achieved in equity and fixed income underwriting as well as in global mergers and acquisitions. Investments are expected to continue in 2001 to expand and upgrade the Private Client branch system as well as expanding the integration of Internet services with personal advice from the Salomon Smith Barney Financial Consultants. In 2001, the businesses also plan to continue broadening e-commerce opportunities through the development of new products, services and strategic partnerships. Citigroup continues to monitor the impact of the slowing U.S. economy on its portfolio. Problem credits will continue to be identified early and appropriate remedial actions will be taken. EMERGING MARKETS CORPORATE BANKING. EM Corporate continues to work on strategies such as Embedded Bank, Emerging Local Corporate and selective acquisitions to increase market share in priority countries. In June 2000, EM Corporate reinforced its position in Poland by completing the acquisition of a majority interest in Bank Handlowy. Investments in a number of Internet initiatives are expected to continue in 2001, including the expansion of CitiDirect--giving clients Internet-based access to cash management and trade capabilities--which has been installed in 39 countries and is available in 4 languages. 50
Overall, the EM Corporate portfolio remains diversified across a number of geographies and industry groups. During 2000, most emerging market economies showed improvements, particularly in Asia. While most countries that suffered from the economic turmoil of 1998 and early 1999 have stabilized, they remain dependent on U.S. and world economic growth as well as liquidity. Citigroup continues to monitor countries closely and, where appropriate, adjusts exposures, tunes early warning systems and strengthens risk management oversight. COMMERCIAL LINES. In 2000, the trend of higher rates continued in Commercial Lines. Prices generally rose throughout the year, although some of the increases varied significantly by region and business segment. These increases were necessary to offset the impact of rising loss cost trends and the decline in profitability from the competitive pressures of the last several years. In National Accounts, where programs include risk management service, such as claims settlement, loss control and risk management information services, which are generally offered in connection with a large deductible or self-insured program, and risk transfer, which is typically provided through a guaranteed cost or retrospectively rated insurance policy, pricing began to stabilize during 2000. National Accounts has benefited from higher rates on both new and renewal business as evidenced by the improving profit margins earned on this business. National Accounts believes that pricing will continue to firm in 2001. However, National Accounts will continue to reject business that is not expected to produce acceptable returns. Commercial Accounts achieved double-digit price increases on renewal business during 2000, improving the overall profit margin in this business. In addition, these increases were necessary to offset the impacts of rising loss cost inflation, medical inflation and reinsurance costs. Commercial Accounts will continue to seek significant rate increases in 2001 as pricing in certain areas and business segments has not improved to the point of producing acceptable returns. In Select Accounts, the trends toward increased pricing on renewal business that started in late 1999 gained momentum in 2000. Prices generally rose throughout the year, although these increases varied significantly by region, industry and product. Loss cost trends, however also worsened in 2000, especially in workers' compensation and auto liability. The impact of these negative loss cost trends has been partially offset by a continued disciplined approach to underwriting and risk selection by the Company. Select Accounts believes that the improvements gained through high quality underwriting and continued price increases in 2001 may be offset by the combination of worsening loss cost trends in certain lines and regulatory pricing constraints in some jurisdictions. Specialty Accounts achieved significant growth in 2000, with the acquisition of Reliance Surety, cementing a leadership position in the surety bond marketplace by broadening product and service capabilities. The Company's focus in this market is to sustain its emphasis on products with the most opportunities for acceptable profitability and increase its efforts to cross sell its expanding array of specialty products to existing customers of National Accounts, Commercial Accounts, Select Accounts, and various other Citigroup units. The Company was able to achieve growth in its premium and fee levels during 2000 as a result of the Reliance Surety acquisition, the acquisition of the renewal rights for the Reliance Middle Market and Frontier businesses and the continuation of rate increases. The rate increases are expected to continue into 2001, although the deteriorating loss cost trends and increased costs of reinsurance will offset some of the positive impact. The Company will continue to adhere to strict underwriting guidelines and to reject business that is not expected to produce acceptable returns. The Company continues to receive asbestos claims alleging insureds' liability from claimants' asbestos-related injuries. In 2000, the Company experienced an increase over prior years in the number of asbestos claims being tendered to the Company. However, the uncertainties surrounding the final 51
resolution of these claims continue. See the discussion on Asbestos Claims and Uncertainty Regarding Adequacy of Environmental and Asbestos Reserves. The property and casualty insurance industry continues to be reshaped by consolidation and globalization. The Company's strategic objectives are to enhance its position as a consistently profitable market leader and to become a low-cost provider of property and casualty insurance in the United States, as the industry consolidates. While some of the insurance industry's cost control methods have been challenged in litigation, it continues to be the Company's objective to be a low-cost provider of property and casualty insurance, with an emphasis on claim payout and performance and enhanced productivity. With respect to globalization, Citigroup recently announced the formation of CitiInsurance, the international arm of Citigroup insurance activities. This new Citigroup unit was formed to capitalize on the strength of the Citigroup branch franchise and the extensive distribution strength of the Citigroup consumer business around the world. This unit expects to build on the progress already made in Southeast Asia during 2000 with the strategic alliance with Fubon Group, a diversified financial services company based in Taiwan. As required by various state laws and regulations, the Company's insurance subsidiaries are subject to assessments from state-administered guaranty associations, second injury funds and similar associations. Management believes that such assessments will not have a material impact on the Company's results of operations, financial condition or liquidity. GLOBAL INVESTING MANAGEMENT AND PRIVATE BANKING <TABLE> <CAPTION> In Millions of Dollars 2000 1999(1) 1998(1) -------- -------- -------- <S> <C> <C> <C> TOTAL REVENUES, NET OF INTEREST EXPENSE..................... $3,299 $2,706 $2,404 Adjusted operating expenses(2).............................. 2,156 1,719 1,563 Provision for credit losses................................. 23 12 5 ------ ------ ------ CORE INCOME BEFORE TAXES AND MINORITY INTEREST.............. 1,120 975 836 Income taxes................................................ 432 378 327 Minority interest, after-tax................................ 3 -- -- ------ ------ ------ CORE INCOME................................................. 685 597 509 Restructuring-related items, after-tax...................... (11) 2 (53) ------ ------ ------ NET INCOME.................................................. $ 674 $ 599 $ 456 ====== ====== ====== </TABLE> - ------------------------ (1) Reclassified to conform to the 2000 presentation. (2) Excludes restructuring-related items. Global Investment Management and Private Banking is comprised of Citigroup Asset Management and The Citigroup Private Bank. These businesses offer a broad range of asset management products and services from global investment centers around the world, including mutual funds, closed-end funds, managed accounts, unit investment trusts, variable annuities, pension administration and personalized wealth management services to institutional, high net worth and retail clients. Global Investment Management and Private Banking core income in 2000 increased to $685 million, up $88 million or 15% from 1999. The 2000 increase in core income reflected continued customer revenue momentum within The Citigroup Private Bank along with the impact of the acquisitions of Garante, Siembra and Colfondos in Citigroup Asset Management. Core income of $597 million in 1999 was up $88 million or 17% from 1998, primarily reflecting revenue growth corresponding to growth in assets under management within Citigroup Asset Management and client 52
business volumes within The Citigroup Private Bank. Net income of $674 million in 2000, $599 million in 1999, and $456 million in 1998 included a restructuring-related charge of $11 million ($18 million pretax), a restructuring-related credit of $2 million ($4 million pretax) and a restructuring-related charge of $53 million ($87 million pretax), respectively. CITIGROUP ASSET MANAGEMENT <TABLE> <CAPTION> In Millions of Dollars 2000 1999(1) 1998(1) -------- -------- -------- <S> <C> <C> <C> TOTAL REVENUES, NET OF INTEREST EXPENSE..................... $1,893 $1,494 $1,274 Adjusted operating expenses(2).............................. 1,286 949 836 ------ ------ ------ CORE INCOME BEFORE TAXES AND MINORITY INTEREST.............. 607 545 438 Income taxes................................................ 243 217 173 Minority interest, after-tax................................ 3 -- -- ------ ------ ------ CORE INCOME................................................. 361 328 265 Restructuring-related items, after-tax...................... (6) 1 (10) ------ ------ ------ NET INCOME.................................................. $ 355 $ 329 $ 255 ====== ====== ====== Assets under management (IN BILLIONS OF DOLLARS)(3)(4)...... $ 401 $ 377 $ 340 ====== ====== ====== </TABLE> - ------------------------ (1) Reclassified to conform to the 2000 presentation. (2) Excludes restructuring-related items. (3) Includes $30 billion, $31 billion, and $34 billion in 2000, 1999 and 1998, respectively, for Citigroup Private Bank clients. (4) Includes Unit Investment Trusts held in client accounts of $9 billion, $13 billion and $13 billion in 2000, 1999 and 1998, respectively, and $5 billion in Emerging Markets Pension Administration assets under management in 2000. Citigroup Asset Management is comprised of the substantial resources that are available through its three primary asset management business platforms--Smith Barney Asset Management, Salomon Brothers Asset Management and Citibank Asset Management--along with the pension administration businesses of Global Retirement Services. These businesses offer institutional, high net worth and retail clients a broad range of investment alternatives from global investment centers around the world. Products and services offered include mutual funds, closed-end funds, separately managed accounts, unit investment trusts, variable annuities (through affiliated and third party insurance companies) and pension administration. Core income of $361 million in 2000 was up $33 million or 10% compared to 1999, reflecting the impact of Latin American acquisitions in the Global Retirement Services business and growth in asset-based fee revenue, partially offset by increased expenses. Core income of $328 million in 1999 grew $63 million or 24% from 1998, primarily reflecting an increase in assets under management and a corresponding increase in revenues. Net income of $355 million in 2000, $329 million in 1999, and $255 million in 1998 included a restructuring-related charge of $6 million ($10 million pretax), a restructuring-related credit of $1 million ($2 million pretax), and a restructuring-related charge of $10 million ($17 million pretax), respectively. Assets under management rose to $401 billion as of December 31, 2000, up 6% from $377 billion in 1999, reflecting growth within the money market and institutional liquidity funds and managed accounts product categories. Retail client assets were $242 billion, up 9% compared to 1999 as growth in private client separately managed accounts (up 20%) and money market funds (up 17%) were 53
partially offset by a decline in fixed income funds. Institutional client assets of $154 billion at December 31, 2000 were down 1% compared to a year ago reflecting a decline in managed accounts, partially offset by cross-selling efforts, including $20 billion in sales to Global Corporate and Investment Bank customers. Sales of proprietary mutual funds and managed account products at SSB rose 30% to $21 billion in 2000 and represented 41% of SSB's retail channel sales for the year. Sales of mutual and money funds through Global Consumer's banking network were $13 billion for the year, representing 56% of total sales, including $9.3 billion in International and $4.2 billion in the U.S. Primerica sold $1.8 billion of proprietary U.S. mutual and money funds in 2000, a 10% increase compared to 1999, representing 50% of Primerica's total sales. Revenues, net of interest expense, increased $399 million or 27% to $1.893 billion in 2000, compared to $1.494 billion in 1999 which was up $220 million or 17% from 1998. The increase in 2000 was primarily due to the impact of the acquisitions of Siembra, Garante and Colfondos in the Global Retirement Services business, along with continued growth in asset-based fee revenues. The increase in 1999 was predominantly due to an increase in advisory fee revenues and reflected broad-based growth in assets under management. Adjusted operating expenses of $1.286 billion in 2000 were up $337 million or 36% from 1999. The increase in 2000 reflected the impact of the acquisitions of Siembra, Garante and Colfondos as well as continued investments in sales and marketing activities, technology and product development. Expenses were $949 million in 1999, up $113 million or 14%, primarily reflecting higher costs associated with building the business' global sales and marketing capabilities and investments in research, quantitative and technology expertise. THE CITIGROUP PRIVATE BANK <TABLE> <CAPTION> In Millions of Dollars 2000 1999(1) 1998(1) -------- -------- -------- <S> <C> <C> <C> TOTAL REVENUES, NET OF INTEREST EXPENSE..................... $1,406 $1,212 $1,130 Adjusted operating expenses(2).............................. 870 770 727 Provision for credit losses................................. 23 12 5 ------ ------ ------ CORE INCOME BEFORE TAXES.................................... 513 430 398 Income taxes................................................ 189 161 154 ------ ------ ------ CORE INCOME................................................. 324 269 244 Restructuring-related items, after-tax...................... (5) 1 (43) ------ ------ ------ NET INCOME.................................................. $ 319 $ 270 $ 201 ====== ====== ====== Average assets (IN BILLIONS OF DOLLARS)..................... $ 25 $ 20 $ 17 Return on assets............................................ 1.28% 1.35% 1.18% ====== ====== ====== EXCLUDING RESTRUCTURING-RELATED ITEMS Return on assets............................................ 1.30% 1.35% 1.44% ====== ====== ====== Client business volumes under management (IN BILLIONS OF DOLLARS).................................................. $ 153 $ 140 $ 116 ====== ====== ====== </TABLE> - ------------------------ (1) Reclassified to conform to the 2000 presentation. (2) Excludes restructuring-related items. The Citigroup Private Bank provides personalized wealth management services for high net worth clients around the world. The Citigroup Private Bank reported core income in 2000 of $324 million, up $55 million or 20% from 1999, primarily reflecting continued customer revenue momentum, partially 54
offset by increased front-end expenses. Core income of $269 million in 1999 was up $25 million or 10% from 1998, primarily reflecting improving revenue growth which outpaced moderate increases in expenses and the provision for credit losses. Net income of $319 million in 2000, $270 million in 1999 and $201 million in 1998, included a restructuring-related charge of $5 million ($8 million pretax), a restructuring-related credit of $1 million ($2 million pretax) and a restructuring-related charge of $43 million ($70 million pretax), respectively. Client business volumes under management, which include custody accounts, client assets under fee-based management, deposits and loans, were $153 billion at the end of the year, up 9% from $140 billion in 1999, reflecting strong growth in the U.S., Asia Pacific and CEEMEA. Business volumes grew in all product lines. Revenues, net of interest expense, in 2000 were $1.406 billion, up $194 million or 16% from 1999. Net interest and recurring fee-based revenues increased $131 million or 16%, transaction revenues increased $59 million or 26%, while other revenue increased $4 million or 3% compared to 1999. The 2000 increase in revenues reflected growth in the international region, up $130 million or 17%, as well as continued favorable trends in the U.S., up $64 million or 15% compared to 1999. Revenues in 1999 were $1.212 billion, up $82 million or 7% from 1998, reflecting strong lending and asset management activity, partially offset by lower fees from customer trading-related activities. Adjusted operating expenses of $870 million in 2000 were up $100 million or 13% from 1999, primarily reflecting higher levels of bankers and product specialists hired to improve front-end sales and service capabilities. Expenses of $770 million in 1999 were up $43 million or 6% from 1998, reflecting increased spending related to growth in the sales force and technology platform development, partially offset by saves from restructuring initiatives. The provision for credit losses in 2000 was $23 million, compared with $12 million in 1999 and $5 million in 1998. The increase in the 2000 provision primarily related to a loan in Europe. Net credit losses in 2000 remained at a nominal level of 0.09% of average loans outstanding. Loans 90 days or more past due at year-end were $61 million or 0.23% of total loans outstanding, compared with 0.54% at the end of 1999 and 1.14% at the end of 1998. Average assets of $25 billion in 2000 rose $5 billion or 25% from $20 billion in 1999 which, in turn, increased $3 billion or 18% from 1998. The growth in both periods was primarily due to higher loans. GLOBAL INVESTMENT MANAGEMENT AND PRIVATE BANKING OUTLOOK The statements below are forward-looking statements within the meaning of the Private Securities Litigation Reform Act. See "Forward-Looking Statements" on page 59. The businesses of Global Investment Management and Private Banking are affected by the economic outlook and market levels. The market for investment management and private banking services is extremely attractive because the "wealth" segment has been growing faster than the overall market. While competition for this attractive and dynamic market segment is increasing, the global market is highly fragmented. This presents Global Investment Management and Private Banking with an extremely attractive business opportunity because it is one of the few providers that can claim to offer a full range of services on a global basis. 55
ASSOCIATES <TABLE> <CAPTION> In Millions of Dollars 2000(1) 1999(1) 1998(1) -------- -------- -------- <S> <C> <C> <C> Total revenues, net of interest expense..................... $ 9,728 $8,489 $6,297 Effect of securitization activity........................... 555 438 177 Housing Finance charge...................................... 47 -- -- ------- ------ ------ ADJUSTED REVENUES, NET OF INTEREST EXPENSE.................. 10,330 8,927 6,474 ------- ------ ------ Adjusted operating expenses(2).............................. 4,368 3,875 2,809 Adjusted provision for benefits claims and credit losses(3)................................................. 3,817 2,810 1,849 ------- ------ ------ CORE INCOME BEFORE TAXES.................................... 2,145 2,242 1,816 Income taxes................................................ 764 840 673 ------- ------ ------ CORE INCOME................................................. 1,381 1,402 1,143 Restructuring-related items and merger-related costs, after-tax................................................. (460) (22) -- Housing Finance charge, after-tax........................... (71) -- -- ------- ------ ------ NET INCOME.................................................. $ 850 $1,380 $1,143 ======= ====== ====== Average assets (IN BILLIONS OF DOLLARS)(4).................. $ 90 $ 84 $ 66 Return on assets............................................ 0.94% 1.64% 1.73% ------- ------ ------ EXCLUDING RESTRUCTURING-RELATED ITEMS Return on assets(5)......................................... 1.53% 1.67% 1.73% ======= ====== ====== </TABLE> - ------------------------ (1) Includes after-tax adjustments to conform accounting policies to those of Citigroup of $163 million, $110 million, and $81 million, respectively. See Note 2 of Notes to Consolidated Financial Statements. (2) Excludes restructuring-related items and Housing Finance charge. (3) Adjusted for the effect of securitization and Housing Finance charge. (4) Adjusted for the effect of securitization, managed average assets were $103 billion, $91 billion, and $69 billion in 2000, 1999, and 1998, respectively. (5) Adjusted for the effect of securitization, the return on managed assets, excluding restructuring-related items and Housing Finance charge was 1.34% in 2000, 1.54% in 1999, and 1.66% in 1998. Associates--which provides finance, leasing, insurance and related services to consumers and businesses in the United States and internationally--reported core income of $1.381 billion in 2000, down $21 million or 1.5% from 1999. In 1999, core income increased $259 million or 23%. The increase in core income in 1999 primarily related to continued strong receivable growth, including the effect of acquisitions. Net income of $850 million in 2000 and $1.380 billion in 1999 included restructuring-related items and merger-related costs of $460 million ($630 million pretax) and $22 million ($35 million pretax), respectively, and in 2000, $71 million ($112 million pretax) related to the discontinuation of Associates Housing Finance loan origination operations. The restructuring charge of $474 million recorded in 2000 related to exit costs as a result of Citigroup's acquisition of Associates. The charge included amounts for the reconfiguration of certain branch operations, the exit from non-strategic businesses and from activities as mandated by Federal bank regulations, and the consolidation and integration of Corporate and middle and back office functions. Also recorded in 2000 were $156 million of merger-related costs, which included the direct and incremental costs of administratively closing Citigroup's acquisition of Associates. The 56
implementation of these restructuring initiatives will cause some related premises and equipment assets to become redundant. As a result, the remaining depreciable lives of these assets were shortened, and accelerated depreciation charges of $62 million will be recognized in subsequent periods. See Note 15 of Notes to Consolidated Financial Statements for additional discussion of restructuring-related items. In January 2000, Associates announced its intention to discontinue the loan origination operations of its Associates Housing Finance (AHF) unit. Prior to the announcement, AHF originated and serviced loans for manufactured homes. As a result of this announcement, Associates took a charge of approximately $112 million in the first quarter of 2000. This charge covers exit costs of approximately $25 million, including severance, noncancellable contractual obligations and related costs, a securitization retained interest write-down of approximately $47 million, and a provision for increased losses on the disposition of repossessions of approximately $40 million. Associates closed substantially all of its sales centers in the second quarter of 2000. Associates will service the liquidation of the existing receivables through its centralized service facility. Associates will limit its origination activities to support its contractual arrangements and loss mitigation initiatives. As shown in the following table, Associates managed assets, end-of-period managed receivables and average managed loans increased 22%, 15% and 15%, respectively, during 2000 as compared to 17%, 20% and 24%, respectively, in 1999. The increase in managed receivables was a result of internal growth and acquisitions primarily in the real estate, personal lending and retail sales finance, and credit card product lines. The average net interest margin on receivables increased to 9.65% in 2000 from 9.52% and 9.09% in 1999 and 1998, respectively, reflecting higher yields due to increased interest rates and changes in the aggregate portfolio composition toward high yielding automobile, credit card and personal loans. <TABLE> <CAPTION> In Billions of Dollars 2000 1999 1998 -------- -------- -------- <S> <C> <C> <C> MANAGED BASIS(1) End of period assets........................................ 110 90 77 Average loans............................................... 84 73 59 Average net interest margin %............................... 9.65% 9.52% 9.09% End of period managed receivables........................... 90 78 65 Net credit losses (as a % of average managed loans)......... 3.30% 2.97% 2.59% 90+ day delinquencies (as a % of average managed loans)..... 2.24% 2.20% 1.80% </TABLE> - ------------------------ (1) Excludes manufactured housing and the receivables of Arcadia (an auto finance company purchased in April 2000) which were securitized prior to Associates' purchase of the company. Adjusted revenues, net of interest expense increased $1.403 billion or 16% in 2000 and $2.453 billion or 38% in 1999 primarily resulting from an increase in average loans outstanding during 2000 and the acquisition of Avco Financial Services, Inc. in 1999 (see Note 2 of Notes to Consolidated Financial Statements). Adjusted operating expense of $4.368 billion and $3.875 billion in 1999 increased $493 million or 13% and $1.066 billion or 38% reflecting acquisitions, as well as new business volumes. The adjusted provision for benefits, claims and credit losses increased $1.007 billion or 36% during 2000 and $961 million or 52% in 1999 primarily reflecting receivables growth and industry weakness in the transportation and manufactured housing businesses and in 2000, a $210 million transportation loss provision relating to the truck loan and leasing portfolio. The net credit loss ratio of 3.30% in 2000 increased from 2.97% in 1999 and 2.59% in 1998. Loans delinquent 90 days or more as a percentage of average managed loans increased to 2.24% in 2000 from 2.20% in 1999 and 1.80% in 1998. 57
ASSOCIATES OUTLOOK During 2000, Associates experienced continued revenue growth internally and through acquisitions both domestically and in Japan. In 2001, Associates expects to have growth particularly in its international markets and credit card portfolio due to expansion in its college and emerging credit markets. The commercial business expects reduced earnings due to increased fuel prices, excess capacity for used vehicles and other economic factors having a large negative effect on the performance of its transportation portfolio. This paragraph contains statements that are forward-looking statements within the meaning of the Private Securities Litigation Reform Act. See "Forward-Looking Statements" on page 59. INVESTMENT ACTIVITIES <TABLE> <CAPTION> In Millions of Dollars 2000 1999(1) 1998(1) -------- -------- -------- <S> <C> <C> <C> TOTAL REVENUES, NET OF INTEREST EXPENSE..................... $2,245 $1,090 $1,323 Total operating expenses.................................... 103 66 50 Provision (benefit) for credit losses....................... 7 -- (10) ------ ------ ------ INCOME BEFORE TAXES AND MINORITY INTEREST................... 2,135 1,024 1,283 Income taxes................................................ 782 355 435 Minority interest, after-tax................................ (10) 11 16 ------ ------ ------ NET INCOME.................................................. $1,363 $ 658 $ 832 ====== ====== ====== </TABLE> - ------------------------ (1) Reclassified to conform to the 2000 presentation. Investment Activities comprises Citigroup's venture capital activities, realized investment gains (losses) related to certain corporate and insurance-related investments, and the results of certain investments in countries that refinanced debt under the 1989 Brady Plan or plans of a similar nature. Revenues, net of interest expense in 2000 of $2.245 billion increased $1.155 billion from 1999, primarily reflecting increases in venture capital results and gains on the exchange of certain Latin American bonds. Partially offsetting the 2000 revenue increases were 2000 first quarter losses in insurance-related investments from repositioning activities designed to improve yields and maturity profiles, and writedowns in the refinancing portfolio. Revenues in 1999 of $1.090 billion declined $233 million from 1998, primarily reflecting declines in realized gains from sales of Brady bonds and insurance-related investments, partially offset by an increase in venture capital results and realized investment gains on certain corporate-related investments. Investment Activities results may fluctuate in the future as a result of market and asset-specific factors. This statement is a forward-looking statement within the meaning of the Private Securities Litigation Reform Act. See "Forward-Looking Statements" on page 59. 58
CORPORATE/OTHER <TABLE> <CAPTION> In Millions of Dollars 2000 1999(1) 1998(1) -------- -------- -------- <S> <C> <C> <C> TOTAL REVENUES, NET OF INTEREST EXPENSE..................... $ (697) $ (208) $(139) Adjusted operating expenses(2).............................. 792 760 756 Provisions for benefits, claims and credit losses........... (2) 33 (1) ------- ------ ----- LOSS BEFORE TAX BENEFITS.................................... (1,487) (1,001) (894) Tax benefits................................................ (534) (346) (371) ------- ------ ----- LOSS........................................................ (953) (655) (523) Restructuring-related items and merger-related costs, after-tax................................................. (55) (20) (107) ------- ------ ----- NET LOSS.................................................... $(1,008) $ (675) $(630) ======= ====== ===== </TABLE> - ------------------------ (1) Reclassified to conform to the 2000 presentation. (2) Excludes restructuring-related items and merger-related costs. Corporate/Other includes net corporate treasury results, corporate staff and other corporate expenses, certain intersegment eliminations, and the remainder of Internet-related development activities (e-Citi) not allocated to the individual businesses. Revenues in 2000 and 1999 included higher treasury costs as well as the impact of intersegment eliminations and in 1998, income from the disposition of a real estate development property. Expenses in 2000 include a $108 million pretax expense for the contribution of appreciated venture capital securities to Citigroup's Foundation, which had minimal impact on Citigroup's earnings after related tax benefits and investment gains, and increases in certain unallocated corporate costs offset by decreases in performance-based option expense, technology costs and intersegment eliminations. Expenses in 1999 included certain technology costs associated with year 2000 remediation, partially offset by decreases in corporate staff expenses as a result of headcount reductions in 1999. Expenses in 1998 included a $100 million contribution of appreciated venture capital securities to the Company's Foundation, which had minimal impact on Citigroup's earnings after related tax benefits and investment gains. 1999 and 1998 expenses included $108 million and $70 million, respectively, associated with performance-based stock options granted in 1998 and prior years. The 2000 after-tax restructuring-related items of $55 million consisted of $21 million in merger-related costs due to the Associates acquisition, $19 million relating to accelerated depreciation charges and $15 million in net restructuring charges to streamline corporate functions. The 1999 after-tax restructuring-related items of $20 million primarily included accelerated depreciation charges. The 1998 after-tax restructuring-related items included $42 million to streamline and integrate corporate staff functions, as well as $65 million of one-time expenses associated with merging Citigroup's predecessor organizations. See Note 15 of Notes to the Consolidated Financial Statements for additional information on restructuring-related items and merger-related costs. FUTURE APPLICATION OF ACCOUNTING STANDARDS See Note 1 of Notes to the Consolidated Financial Statements for a discussion of recently issued accounting pronouncements. FORWARD-LOOKING STATEMENTS Certain of the statements contained herein that are not historical facts are forward-looking statements within the meaning of the Private Securities Litigation Reform Act. Many of these statements appear under the heading "Global Consumer Outlook," "Global Corporate and Investment 59
Bank Outlook," "Global Investment Management and Private Banking Outlook," and "Associates Outlook." The Company's actual results may differ materially from those included in the forward-looking statements. Forward-looking statements are typically identified by words or phrases such as "believe," "expect," "anticipate," "intend," "estimate," "may increase," "may fluctuate," and similar expressions or future or conditional verbs such as "will," "should," "would," and "could." These forward-looking statements involve risks and uncertainties including, but not limited to global economic and political conditions, levels of activity in the global capital marketplace, and the maturing of recent credit portfolio additions; changes in general economic conditions including the slowing U.S. economy, the performance of global financial markets, prevailing inflation and interest rates, increased fuel prices, excess capacity for used vehicles, and rising reinsurance costs; results of various Investment Activities; the effects of competitors' pricing and service policies, of consumer privacy provisions included in the Gramm-Leach-Bliley Act, and of proposed changes in laws and regulations on the cost and availability of certain types of insurance, as well as the claim and coverage obligations of insurers, on the regulatory treatment of certain investments, on determining minimum regulatory capital requirements, on risk-based capital guidelines, and on reporting requirements; the resolution of legal proceedings and related matters; the actual amount of liabilities associated with certain environmental and asbestos-related insurance claims; and the Company's success in managing the costs associated with the expansion of existing distribution channels and developing new ones, and in realizing increased revenues from such distribution channels, including cross-selling initiatives and electronic commerce-based efforts. MANAGING GLOBAL RISK The Citigroup Risk Management framework recognizes the wide range and diversity of global business activities by balancing strong corporate oversight with defined independent risk management functions at the business level. The risk management functions at the corporate-level are responsible for establishing Citigroup risk management standards and ensuring their ongoing appropriateness, appointing business-specific risk managers, approving business-specific risk management policies and limits, and reviewing, on an ongoing basis, major risk exposures and concentrations across the organization. The business-specific risk managers are responsible for establishing and implementing risk management policies and practices within their business, while ensuring ongoing consistency with Citigroup standards. The business-specific risk managers have dual accountability--to the Citigroup Senior Risk Officer and to the head of their business unit. The Citigroup Senior Risk Officer is responsible for reviewing material corporate-wide risks, and determining appropriate exposure levels and limits. These risks are regularly reviewed with the business risk managers, the Citigroup Management Committee, and as necessary, with committees of the Board of Directors: - Risk ratings, including trends in client creditworthiness; - Industry concentrations, globally and within regions; - Corporate customer credit concentrations and consumer programs; - Product concentrations in consumer managed receivables, by product and by region; - Global real estate exposure, including commercial and consumer portfolios; - Country risk, encompassing political and cross-border risk; - Counterparty risk, evaluating presettlement risk on foreign exchange, derivative products, and securities trades; 60
- The estimated effects of sudden and severe external market events; - Distribution and underwriting risk, capturing the risk that arises when Citigroup commits to purchase an instrument from an issuer for subsequent sale; - Business process defects identified by Audit and Risk Review; - Price risk, evaluating the earnings risk resulting from changing levels and implied volatilities of interest rates, foreign exchange rates, and commodity and security prices; - Liquidity risk, evaluating funding concentrations and diversification strategy; - Commodities risk, evaluating earnings risk resulting from changing levels and volatilities of commodity prices; - Life Insurance, evaluating the risks that result from the underwriting, sale, and reinsurance of life insurance policies; - Property & Casualty, evaluating the risks that result from the underwriting, sale, and reinsurance of commercial, personal, and performance bonds insurance policies; - Equity and subordinated debt investment risk; - Margin lending risk; - Legal risk, reviewing the business implications of legal issues; and - Technology risk, assessing vulnerability to the business processing environment. The following sections summarize the processes for managing credit and market risks within Citigroup's major businesses, and reflect the successful ongoing integration of businesses and risk management practices. THE CREDIT RISK MANAGEMENT PROCESS The credit risk management process at Citigroup relies on corporate-wide standards to ensure consistency and integrity, with business-specific policies and practices to ensure applicability and ownership. Within the Global Corporate and Investment Bank (GCIB), the credit process is grounded in a series of fundamental policies, including: - Business accountability for credit risks taken; - Single center of control for each credit relationship; - Approval authority standards; - Approval requirements from the business and from independent credit risk management; - Uniform risk measurement standards, including risk ratings; - Portfolio management tools, including obligor and other limits. These policies apply universally across the Global Corporate and Investment Bank, as well as the Private Bank, and incorporate previous Citibank and Salomon Smith Barney credit policies. GCIB businesses that require tailored credit processes, due to unique or unusual risk characteristics in their activities, may do so under a separately approved Credit Program. A Credit Program must be sponsored by a business, and must be approved by independent credit risk management. In all cases, the GCIB Policies must be adhered to, or specific exceptions must be granted by independent credit risk management. 61
Within the Global Consumer Group (GCG), business-specific credit risk policies and procedures are derived from the following risk management framework: - Each business must develop a plan, including risk/return tradeoffs, as well as risk acceptance criteria and policies appropriate to their activities; - Senior Business Managers are responsible for managing risk/return tradeoffs in their business; - Senior Business Managers, in conjunction with Senior Credit Officers, implement business-specific risk management policies and practices; - Approval policies for a product or business are tailored to audit ratings, profitability and credit risk management performance; - Independent credit risk management is responsible for establishing the GCG Policy, approving business-specific policies and procedures, monitoring business risk management performance, providing ongoing assessment of portfolio credit risks, and approving new products and new risks. In the course of its insurance activities, TPC reinsures a portion of the risks it underwrites in an effort to control its exposure to losses, stabilize earnings and protect capital resources. TPC cedes to reinsurers a portion of these risks and pays premiums based upon the risk and exposure of the policies subject to such reinsurance. Reinsurance involves credit risk and is subject to aggregate loss limits. Although the reinsurer is liable to TPC generally to the extent of the reinsurance ceded, TPC remains primarily liable as the direct insurer on all risks reinsured. TPC also holds collateral, including escrow funds and letters of credit, under certain reinsurance agreements. TPC monitors the financial condition of reinsurers on an ongoing basis, and reviews its reinsurance arrangements periodically. Reinsurers are selected based on their financial condition, business practices and the price of their product offerings. For additional information concerning reinsurance, see Note 14 of Notes to Consolidated Financial Statements. THE MARKET RISK MANAGEMENT PROCESS Market risk encompasses liquidity risk and price risk, both of which arise in the normal course of business of a global financial intermediary. Liquidity risk is the risk that some entity, in some location and in some currency, may be unable to meet a financial commitment to a customer, creditor, or investor when due. Liquidity Risk is discussed in greater detail in the Liquidity and Capital Resources section. Market risk at Citigroup--like credit risk--is managed through corporate-wide standards and business-specific policies and procedures. Each business is required to establish a market risk limit framework, including standardized risk measures, limits and controls, and independent reporting and monitoring functions. In all cases, the businesses are ultimately responsible for the market risks that they take, and for remaining within their defined limit frameworks. Independent market risk management establishes policies and procedures, approves limits, and monitors exposures against limits. Price risk is the risk to earnings that arises from changes in interest rates, foreign exchange rates, equity and commodity prices, and in their implied volatilities. Price risk arises in Non-Trading Portfolios, as well as in Trading Portfolios. NON-TRADING PORTFOLIOS Price risk in non-trading portfolios is measured predominantly through Earnings-at-Risk and Factor Sensitivity techniques. These measurement techniques are supplemented with additional tools, including stress testing and cost-to-close analysis. 62
Business units manage the potential earnings effect of interest rate movements by managing the asset and liability mix, either directly or through the use of derivative financial products. These include interest rate swaps and other derivative instruments which are either designated and effective as hedges or designated and effective in modifying the interest rate characteristics of specified assets or liabilities. The utilization of derivatives is managed in response to changing market conditions as well as to changes in the characteristics and mix of the related assets and liabilities. Additional information about non-trading derivatives is located in Note 23 of Notes to Consolidated Financial Statements. Citigroup does not utilize instruments with leverage features in connection with its non-trading risk management activities. Earnings-at-Risk is the primary method for measuring price risk in Citigroup's non-trading portfolios (excluding the Travelers Insurance Companies). Earnings-at-Risk measures the pretax earnings impact of a specified upward and downward shift in the yield curve for the appropriate currency. The Earnings-at-Risk is calculated separately for each currency and reflects the repricing gaps in the position as well as option positions, both explicit and embedded. U.S. dollar exposures are calculated by multiplying the gap between interest sensitive items, including assets, liabilities, derivative instruments and other off-balance sheet instruments, by 100 basis points. Non-U.S. dollar exposures are calculated utilizing the statistical equivalent of a 100 basis point change in interest rates and assumes no correlation between exposures in different currencies. Citigroup's primary non-trading price risk exposure is to movements in U.S. dollar interest rates. Citigroup also has Earnings-at-Risk in various other currencies; however, there are no significant risk concentrations in any individual non-U.S. dollar currency. The following table illustrates the impact to Citigroup pretax earnings from a 100 basis point increase or decrease in the U.S. dollar yield curve. As of December 31, 2000, pre-tax earnings would have a potential negative impact of $243 million from an interest rate increase and a potential positive impact of $270 million over the next 12 months from an interest rate decrease. This level of 12 month Earnings-at-Risk equates to less than 1.5% of Citigroup pre-tax earnings in 2000. The potential impact on pre-tax earnings for periods beyond the first 12 months is an increase of $778 million from an increase in interest rates and a decrease of $883 million from a decline in interest rates. The change in Earnings-at-Risk from the prior year reflects the growth in Citigroup's fixed funding as well as the reduction in the use of derivatives in managing our risk portfolio. The statistical equivalent of a 100 basis points increase in non-U.S. dollar interest rates would have a potential negative impact on Citigroup's pretax earnings of approximately $187 million for 2001 and $98 million for the years thereafter. The statistical equivalent of a 100 basis points decrease in non-U.S. dollar interest rates would have a potential positive impact on Citigroup's pretax earnings of approximately $189 million for 2001 and $115 million for the years thereafter. The lower sensitivity to rising rates in the non-U.S. dollar Earnings-at-Risk from the prior year primarily reflects the lower interest rate volatility seen across the Asia Pacific region. 63
CITIGROUP EARNINGS-AT-RISK (IMPACT ON PRETAX EARNINGS)(1)(2) <TABLE> <CAPTION> DECEMBER 31, 2000 DECEMBER 31, 1999 ----------------------------------------- ----------------------------------------- U.S. DOLLAR NON-U.S. DOLLAR(3) U.S. DOLLAR NON-U.S. DOLLAR(3) ------------------- ------------------- ------------------- ------------------- In Millions of Dollars INCREASE DECREASE INCREASE DECREASE INCREASE DECREASE INCREASE DECREASE -------- -------- -------- -------- -------- -------- -------- -------- <S> <C> <C> <C> <C> <C> <C> <C> <C> Twelve months and less........ $(243) $ 270 $(187) $189 $(410) $ 438 $(273) $274 Thereafter.................... 778 (883) (98) 115 161 (232) (347) 352 ----- ----- ----- ---- ----- ----- ----- ---- TOTAL......................... $ 535 $(613) $(285) $304 $(249) $ 206 $(620) $626 ===== ===== ===== ==== ===== ===== ===== ==== </TABLE> - ------------------------ (1) Excludes the Travelers Insurance Companies (see below). (2) Certain information has been restated from that presented in the prior year to reflect reorganizations and a change in assumptions (specifically revising the measurement of Earnings-at-Risk from a two standard deviation change in interest rates to a 100 basis point change). These changes were made to reflect a more consistent view for managing price risk throughout the organization. (3) Primarily results from Earnings-at-Risk in the Euro, Canadian dollar, Singapore dollar and Hong Kong dollar. TRAVELERS INSURANCE COMPANIES The table below reflects the estimated decrease in the fair value of financial instruments held in the Travelers Insurance Companies, as a result of a 100 basis point increase in interest rates. <TABLE> <CAPTION> In Millions of Dollars at December 31, 2000 1999(1) -------- -------- <S> <C> <C> ASSETS Investments......................................... $2,715 $2,594 ------ ------ LIABILITIES Long-term debt...................................... $ 28 $ 33 Contractholder funds................................ 542 427 Redeemable securities of subsidiary trusts.......... 44 82 ====== ====== </TABLE> - ------------------------ (1) Certain information has been restated from that presented in the prior year to reflect reorganizations and to reflect a more consistent view for managing price risk throughout the organization. A significant portion of Travelers Insurance Companies liabilities, (e.g., insurance policy and claims reserves) are not financial instruments and are excluded from the above sensitivity analysis. Corresponding changes in fair value of these accounts, based on the present value of estimated cash flows, would materially mitigate the impact of the net decrease in values implied above. The analysis also excludes all financial instruments, including long-term debt, identified with trading activities. The analysis reflects the estimated gross change in value resulting from a change in interest rates only and is not comparable to the Earnings-at-Risk used for the Citigroup non-trading portfolios or the Value-at-Risk used for the trading portfolios, described below. 64
TRADING PORTFOLIOS Price risk in trading portfolios is measured through a complementary set of tools, including Factor Sensitivities, Value-at-Risk, and Stress Testing. Each trading portfolio has its own market risk limit framework, encompassing these measures and other controls, including permitted product lists and a new, complex product approval process, established by the business, and approved by independent market risk management. Factor Sensitivities are defined as the change in the value of a position for a defined change in a market risk factor (e.g., the change in the value of a Treasury bill for a 1 basis point change in interest rates). It is the responsibility of independent market risk management to ensure that factor sensitivities are calculated, monitored and, in some cases, limited, for all relevant risks taken in a trading portfolio. Value-at-Risk estimates the potential decline in the value of a position or a portfolio, under normal market conditions, over a one-day holding period, at a 99% confidence level. The Value-at-Risk method incorporates the Factor Sensitivities of the trading portfolio with the volatilities and correlations of those factors. Stress Testing is performed on trading portfolios on a regular basis, to estimate the impact of extreme market movements. Stress Testing is performed on individual trading portfolios, as well as on aggregations of portfolios and businesses, as appropriate. It is the responsibility of independent market risk management, in conjunction with the businesses, to develop stress scenarios, review the output of periodic stress testing exercises, and utilize the information to make judgments as to the ongoing appropriateness of exposure levels and limits.. New and/or complex products in trading portfolios are required to be reviewed and approved by the GCIB Capital Markets Approval Committee (CMAC). The CMAC is responsible for ensuring that all relevant risks are identified and understood, and can be measured, managed and reported in accordance with applicable GCIB policies and practices. The CMAC is made up of senior representatives from market and credit risk management, legal, accounting, operations and other support areas, as required. The level of price risk exposure at any given point in time depends on the market environment and expectations of future price and market movements, and will vary from period to period. For Citicorp's major trading centers, the aggregate pretax Value-at-Risk in the trading portfolios was $29 million at December 31, 2000. Daily exposures at Citicorp averaged $24 million in 2000 and ranged from $16 million to $36 million. At Salomon Smith Barney the aggregate pretax Value-at-Risk in the trading portfolios was $35 million at December 31, 2000. Quarterly exposures at Salomon Smith Barney averaged $28 million in 2000 and ranged from $20 million to $37 million. The following table summarizes Value-at-Risk in the trading portfolios as of December 31, 2000 and 1999, along with the averages. <TABLE> <CAPTION> CITICORP SALOMON SMITH BARNEY ----------------------------------------- ----------------------------------------- DEC. 31, 2000 DEC. 31, 1999 DEC. 31, 2000 DEC. 31, 1999 In Millions of Dollars 2000 AVERAGE 1999 AVERAGE 2000 AVERAGE 1999 AVERAGE -------- -------- -------- -------- -------- -------- -------- -------- <S> <C> <C> <C> <C> <C> <C> <C> <C> Interest rate.................... $ 18 $ 17 $ 15 $ 13 $ 35 $ 26 $ 20 $ 37 Foreign exchange................. 9 9 17 9 2 1 -- 5 Equity........................... 20 14 11 9 4 6 6 5 All other (primarily commodity)..................... 9 5 2 1 6 9 8 10 Covariance adjustment............ (27) (21) (21) (14) (12) (14) (11) (18) ---- ---- ---- ---- ---- ---- ---- ---- TOTAL............................ $ 29 $ 24 $ 24 $ 18 $ 35 $ 28 $ 23 $ 39 ==== ==== ==== ==== ==== ==== ==== ==== </TABLE> 65
The table below provides the range of Value-at-Risk in the trading portfolios that was experienced during 2000 and 1999. <TABLE> <CAPTION> CITICORP SALOMON SMITH BARNEY ----------------------------------------- ----------------------------------------- 2000 1999 2000 1999 ------------------- ------------------- ------------------- ------------------- In Millions of Dollars LOW HIGH LOW HIGH LOW HIGH LOW HIGH -------- -------- -------- -------- -------- -------- -------- -------- <S> <C> <C> <C> <C> <C> <C> <C> <C> Interest rate............................. $13 $29 $9 $18 $19 $36 $17 $71 Foreign exchange.......................... 5 18 5 17 -- 8 -- 13 Equity.................................... 9 31 5 16 1 20 1 16 All other (primarily commodity)........... 1 18 1 3 5 14 5 16 === === == === === === === === </TABLE> MANAGEMENT OF CROSS-BORDER RISK Cross-border risk is the risk that Citigroup will be unable to obtain payment from customers on their contractual obligations as a result of actions taken by foreign governments such as exchange controls, debt moratoria, and restrictions on the remittance of funds. Citigroup manages cross-border risk as part of the risk management framework described on pages 60 and 61. Except as described below for cross-border resale agreements and the netting of certain long and short securities positions, the following table presents total cross-border outstandings and commitments on a regulatory basis in accordance with Federal Financial Institutions Examination Council ("FFIEC") guidelines. In regulatory reports under FFIEC guidelines, cross-border resale agreements are presented based on the domicile of the issuer of the securities that are held as collateral. However, for purposes of the following table, cross-border resale agreements are presented based on the domicile of the counterparty because the counterparty has the legal obligation for repayment. Similarly, under FFIEC guidelines, long securities positions are required to be reported on a gross basis. However, for purposes of the following table, certain long and short securities positions are presented on a net basis consistent with internal cross-border risk management policies, reflecting a reduction of risk from offsetting positions. During 2000, the FFIEC revised their cross-border reporting guidelines to allow credit derivative contracts containing cross-border provisions to be treated as effective guarantees. Purchased credit derivative contracts where Citigroup is the beneficiary shift the underlying exposure to the guarantor country. Written credit derivative contracts where Citigroup provides an effective guarantee are included as cross-border commitments in the country of the underlying credit exposure. Total cross-border outstandings and commitments at December 31, 1999 and 1998 have not been restated to reflect this revised FFIEC policy. 66
CROSS-BORDER OUTSTANDINGS AND COMMITMENTS Total cross-border outstandings include cross-border claims on third parties as well as investments in and funding of local franchises. Countries with FFIEC outstandings greater than 0.75% of Citigroup assets for the respective periods include: <TABLE> <CAPTION> DECEMBER 31, 2000 ----------------------------------------------------------------------------------------------- CROSS-BORDER CLAIMS ON THIRD PARTIES INVESTMENTS ------------------------------------------------ IN AND TRADING AND CROSS-BORDER FUNDING OF TOTAL CROSS- SHORT-TERM RESALE ALL LOCAL BORDER In Billions of Dollars CLAIMS(1) AGREEMENTS OTHER TOTAL FRANCHISES OUTSTANDINGS COMMITMENTS(2) ----------- ------------ -------- -------- ----------- ------------ --------------- <S> <C> <C> <C> <C> <C> <C> <C> France............... $7.6 $4.0 $1.8 $13.4 $ -- $13.4 $ 8.4 Germany.............. 6.5 3.9 1.7 12.1 0.3 12.4 7.1 United Kingdom....... 4.3 3.0 3.6 10.9 -- 10.9 15.4 Netherlands.......... 5.6 3.8 1.2 10.6 -- 10.6 1.9 Italy................ 6.3 1.1 1.5 8.9 1.0 9.9 5.7 Canada............... 2.0 0.2 2.5 4.7 4.2 8.9 5.0 Brazil............... 2.5 -- 2.0 4.5 3.6 8.1 0.2 Japan................ 3.5 1.1 2.0 6.6 0.8 7.4 0.8 Mexico............... 1.8 0.1 1.7 3.6 0.3 3.9 1.7 <CAPTION> DECEMBER 31, 1999 ------------------------------ TOTAL CROSS- BORDER In Billions of Dollars OUTSTANDINGS COMMITMENTS(2) ------------ --------------- <S> <C> <C> France............... $ 8.0 $ 2.2 Germany.............. 10.9 3.7 United Kingdom....... 19.5 15.5 Netherlands.......... 8.1 2.9 Italy................ 7.1 0.4 Canada............... 7.1 2.1 Brazil............... 3.8 0.1 Japan................ 9.8 0.1 Mexico............... 4.5 0.1 </TABLE> - ------------------------------ (1) Trading and short-term claims include cross-border debt and equity securities held in the trading account, trade finance receivables, net revaluation gains on foreign exchange and derivative contracts, and other claims with a maturity of less than one year. (2) Commitments (not included in total cross-border outstandings) include legally binding cross-border letters of credit and other commitments and contingencies as defined by the FFIEC. Total cross-border outstandings under FFIEC guidelines, including cross-border resale agreements based on the domicile of the issuer of the securities that are held as collateral, and long securities positions reported on a gross basis, at December 31, 2000, 1999, and 1998 were (in billions) France ($13.5, $7.9, and $8.7), Germany ($16.8, $14.9, and $17.4), the United Kingdom ($9.6, $8.8, and $7.9), the Netherlands ($7.7, $5.0, and $3.9), Italy ($13.9, $10.2, and $8.7), Canada ($9.0, $7.1, and $5.0), Brazil ($9.8, $4.9, and $4.5), Japan ($9.1, $10.5, and $18.2), and Mexico ($4.7, $5.2, and $5.9), respectively. Cross-border commitments (in billions) at December 31, 1998 were $1.1 for France, $1.4 for Germany, $8.9 for the United Kingdom, $0.8 for the Netherlands, $0.3 for Italy, $1.6 for Canada, $0.1 for Brazil, $0.1 for Japan, and $0.2 for Mexico. The sector percentage allocation for bank, public, and private cross-border claims on third parties under FFIEC guidelines at December 31, 2000 was France (31%, 31%, and 38%), Germany (28%, 50%, and 22%), United Kingdom (23%, 16%, and 61%), the Netherlands (20%, 8% and 72%), Italy (17%, 70%, and 13%), Canada (33%, 15% and 52%), Brazil (15%, 37%, and 48%), Japan (16%, 26%, and 58%), and Mexico (2%, 49%, and 49%), respectively. LIQUIDITY AND CAPITAL RESOURCES Citigroup services its obligations primarily with dividends and advances that it receives from subsidiaries. The subsidiaries' dividend paying abilities are limited by certain covenant restrictions in credit agreements and/or by regulatory requirements. Citigroup believes it will have sufficient funds to meet current and future commitments. Each of Citigroup's major operating subsidiaries finances its operations on a basis consistent with its capitalization and ratings. 67
Citigroup, Citicorp, Associates and certain of its affiliated companies, TPC and The Travelers Insurance Company (TIC) issue commercial paper directly to investors. Citigroup and Citicorp, both of which are bank holding companies, maintain combined liquidity reserves of cash, securities, and unused bank lines of credit at least equal to their combined outstanding commercial paper. All of the commercial paper issued by Associates and its affiliates is guaranteed by Citicorp, and Associates maintains unutilized credit facilities, all guaranteed by Citicorp, in support of approximately 75% of its commercial paper. TPC and TIC each maintains unused credit availability under their respective bank lines of credit at least equal to the amount of outstanding commercial paper. Borrowings under bank lines of credit may be at interest rates based on LIBOR, CD rates, the prime rate, or bids submitted by the banks. Each company pays its banks commitment fees for its lines of credit. Citicorp, Salomon Smith Barney, and some of their nonbank subsidiaries have credit facilities with Citicorp's subsidiary banks, including Citibank, N.A. Borrowings under these facilities must be secured in accordance with Section 23A of the Federal Reserve Act. CITIGROUP INC. (CITIGROUP) Citigroup and TIC have a five-year revolving credit facility in the amount of $1.0 billion with a syndicate of banks that expires in June 2001 and can be allocated to either of Citigroup or TIC. The participation of TIC in this agreement is limited to $250 million. At December 31, 2000, all of the facility was allocated to Citigroup. Under this facility, Citigroup is required to maintain a certain level of consolidated stockholders' equity (as defined in the agreement). Citigroup exceeded this requirement by approximately $44 billion at December 31, 2000. At December 31, 2000, there were no borrowings outstanding under this facility. Citigroup is subject to risk-based capital guidelines issued by the Board of Governors of the Federal Reserve System (FRB). These guidelines are used to evaluate capital adequacy based primarily on the perceived credit risk associated with balance sheet assets, as well as certain off-balance sheet exposures such as unused loan commitments, letters of credit, and derivative and foreign exchange contracts. The risk-based capital guidelines are supplemented by a leverage ratio requirement. CITIGROUP RATIOS <TABLE> <CAPTION> At Year-End 2000 1999 -------- -------- <S> <C> <C> Tier 1 capital........................................ 8.38% 8.87% Total capital (Tier 1 and Tier 2)..................... 11.23 11.32 Leverage(1)........................................... 5.97 6.61 Common stockholders' equity........................... 7.14 7.09 ===== ===== </TABLE> - ------------------------ (1) Tier 1 capital divided by adjusted average assets. Citigroup maintained a strong capital position during 2000. Total capital (Tier 1 and Tier 2) amounted to $73.0 billion at December 31, 2000, representing 11.23% of net risk-adjusted assets. This compares to $65.9 billion and 11.32% at December 31, 1999. Tier 1 capital of $54.5 billion at December 31, 2000 represented 8.38% of net risk-adjusted assets, compared to $51.6 billion and 8.87% at December 31, 1999. Citigroup's leverage ratio was 5.97% at December 31, 2000 compared to 6.61% at December 31, 1999. The decrease in the regulatory capital ratios during the year reflects the growth in risk-adjusted and average assets during 2000. See Note 18 of Notes to Consolidated Financial Statements. 68
COMPONENTS OF CAPITAL UNDER REGULATORY GUIDELINES <TABLE> <CAPTION> In Millions of Dollars at Year-End 2000 1999 -------- -------- <S> <C> <C> TIER 1 CAPITAL Common stockholders' equity..................... $ 64,461 $ 56,395 Perpetual preferred stock....................... 1,745 1,895 Mandatorily redeemable securities of subsidiary trusts........................................ 4,920 4,920 Minority interest(1)............................ 334 1,501 Less: Net unrealized gains on securities available for sale(2)......................... (973) (1,647) Intangible assets:(3)........................... Goodwill...................................... (11,972) (8,170) Other intangible assets....................... (3,572) (3,183) Net unrealized losses on available-for-sale equity securities, net of tax(2).............. (68) -- 50% investment in certain subsidiaries(4)....... (82) (107) Other........................................... (295) -- -------- -------- TOTAL TIER 1 CAPITAL............................ 54,498 51,604 -------- -------- TIER 2 CAPITAL Allowance for credit losses(5).................. 8,140 7,294 Qualifying debt(6).............................. 10,492 6,728 Unrealized marketable equity securities gains(2)...................................... -- 363 Less: 50% investment in certain subsidiaries(4)............................... (82) (107) -------- -------- TOTAL TIER 2 CAPITAL............................ 18,550 14,278 -------- -------- TOTAL CAPITAL (TIER 1 AND TIER 2)............... $ 73,048 $ 65,882 ======== ======== NET RISK--ADJUSTED ASSETS(7).................... $650,351 $581,858 ======== ======== </TABLE> - ------------------------ (1) The decrease is primarily related to the purchase of all of the outstanding shares of common stock of TPC not previously owned. (2) Tier 1 capital excludes unrealized gains and losses on debt securities available for sale in accordance with regulatory risk-based capital guidelines. The federal bank regulatory agencies permit institutions to include in Tier 2 capital up to 45% of pretax net unrealized holding gains on available-for-sale equity securities with readily determinable fair values. Institutions are required to deduct from Tier 1 capital net unrealized holding losses on available-for-sale equity securities with readily determinable fair values, net of tax. (3) The increase in goodwill and other intangibles was attributable to the acquisitions completed during the year, including TPC's minority interest, Schroders, Handlowy, Reliance, Copelco, and Siembra. (4) Represents investment in certain overseas insurance activities and unconsolidated banking and finance subsidiaries. (5) Includable up to 1.25% of risk-adjusted assets. Any excess allowance is deducted from risk-adjusted assets. (6) Includes qualifying senior and subordinated debt in an amount not exceeding 50% of Tier 1 capital, and subordinated capital notes subject to certain limitations. The net increase in qualifying 69
debt during 2000 includes $4.25 billion of Citigroup subordinated debt, offset by net redemptions of subsidiary-obligated debt. (7) Includes risk-weighted credit equivalent amounts, net of applicable bilateral netting agreements, of $27.7 billion for interest rate, commodity and equity derivative contracts and foreign exchange contracts, as of December 31, 2000, compared to $32.9 billion as of December 31, 1999. Market risk-equivalent assets included in net risk-adjusted assets amounted to $39.6 billion and $43.1 billion at December 31, 2000 and 1999, respectively. Net risk-adjusted assets also includes the effect of other off-balance sheet exposures such as unused loan commitments and letters of credit and reflects deductions for intangible assets and any excess allowance for credit losses. Common stockholders' equity increased a net $8.1 billion during the year to $64.5 billion at December 31, 2000, representing 7.14% of assets, compared to $56.4 billion and 7.09% at year-end 1999. The increase in common stockholders' equity during the year principally reflected net income of $13.5 billion and $1.4 billion related to the issuance of shares pursuant to employee benefit plans, change in unrealized gains on investment securities and other activity, partially offset by treasury stock acquired of $4.1 billion and dividends declared on common and preferred stock of $2.7 billion. The increase in the common stockholders' equity ratio during the year reflected the above items, which was partially offset by the increase in total assets. During the 2000 third quarter, the Board of Directors approved an additional $5 billion in the existing authority for the periodic repurchase of Citigroup common stock. During the 2000 first quarter, Citigroup redeemed its Series T perpetual preferred stock for $150 million. All of the mandatorily redeemable securities of subsidiary trusts (trust securities) outstanding at December 31, 2000 and 1999 qualify as Tier 1 capital. The amount outstanding for both periods includes $2.3 billion of parent-obligated securities and $2.62 billion of subsidiary-obligated securities. Citigroup's subsidiary depository institutions are subject to the risk-based capital guidelines issued by their respective primary federal bank regulatory agencies, which are generally similar to the FRB's guidelines. At December 31, 2000, all of Citigroup's subsidiary depository institutions were "well capitalized" under the federal bank regulatory agencies' definitions. On January 18, 2001, the FRB issued new proposed rules that would govern the regulatory treatment of merchant banking investments and certain similar equity investments, including investments made by venture capital subsidiaries, in nonfinancial companies held by bank holding companies. The new proposal generally would impose a capital charge that would increase in steps as the banking organization's level of concentration in equity investments increased. An 8 percent Tier 1 capital deduction would apply on covered investments that in the aggregate represent up to 15 percent of an organization's Tier 1 capital. For covered investments that aggregate more than 25 percent of the organization's Tier 1 capital, a top marginal charge of 25 percent would be set. The Company is monitoring the status and progress of the proposed rule, which, at the present time, is not expected to have a significant impact on Citigroup. On January 16, 2001, the Basel Committee on Banking Supervision (Committee) released the second consultative package on the new Basel Capital Accord (new Accord). The proposal modifies and substantially expands a proposal issued for comment by the Committee in June 1999 and describes the methods by which banks can determine their minimum regulatory capital requirements. The new Accord, which will apply to all "significant" banks, as well as to holding companies that are parents of banking groups, is intended to be finalized by year-end 2001, with implementation of the new framework beginning in 2004. The Company is monitoring the status and progress of the proposed rule. Additionally, from time to time, the FRB and the FFIEC propose amendments to, and issue interpretations of, risk-based capital guidelines and reporting instructions. Such proposals or interpretations could, if implemented in the future, affect reported capital ratios and net risk-adjusted 70
assets. This paragraph and the preceding two paragraphs contain forward-looking statements within the meaning of the Private Securities Litigation Reform Act. See "Forward-Looking Statements" on page 59. CITICORP Management of liquidity at Citicorp is the responsibility of the Corporate Treasurer. The Country Corporate Officer and the Country Treasurer ensure that all funding obligations in each country are met when due. The Country Treasurer is appointed by the Corporate Treasurer. The in-country forum for liquidity issues is the Asset/Liability Management Committee (ALCO), which includes senior executives within each country. The ALCO reviews the current and prospective funding requirements for all businesses and legal entities within the country, as well as the capital position and balance sheet. All businesses within the country are represented on the committee with the focal point being the Country Treasurer. Each Country Treasurer must prepare a liquidity plan at least annually that is approved by the Country Corporate Officer, the Regional Treasurer, and the Corporate Treasurer. The liquidity profile is monitored on an on-going basis and reported monthly. Limits are established on the extent to which businesses in a country can take liquidity risk. The size of the limit depends on the depth of the market, experience level of local management, the stability of the liabilities, and liquidity of the assets. Regional Treasurers generally have responsibility for monitoring liquidity risk across a number of countries within a defined geography. They are also available for consultation and special approvals, especially in unusual or volatile market conditions. Citicorp's assets and liabilities are diversified across many currencies, geographic areas, and businesses. Particular attention is paid to those businesses which for tax, sovereign risk, or regulatory reasons cannot be freely and readily funded in the international markets. A diversity of funding sources, currencies, and maturities is used to gain a broad access to the investor base. Citicorp's deposits, which represent 55% of total funding at both December 31, 2000 and 1999 are broadly diversified by both geography and customer segments. Stockholder's equity, which grew $12.4 billion during the year to $47.9 billion at year-end 2000, continues to be an important component of the overall funding structure. In addition, long-term debt is issued by Citicorp and its subsidiaries. Total Citicorp long-term debt outstanding at year-end 2000 was $80.3 billion, compared with $67.8 billion at year-end 1999. Asset securitization programs remain an important source of liquidity. Loans securitized during 2000 included $9.1 billion of U.S. credit cards and $12.0 billion of U.S. consumer mortgages. As credit card securitization transactions amortize, newly originated receivables are recorded on Citicorp's balance sheet and become available for asset securitization. In 2000, the scheduled amortization of certain credit card securitization transactions made available $7.4 billion of new receivables. In addition, at least $13.1 billion of credit card securitization transactions are scheduled to amortize during 2001. Citicorp is a legal entity separate and distinct from Citibank, N.A. and its other subsidiaries and affiliates. There are various legal limitations on the extent to which Citicorp's banking subsidiaries may extend credit, pay dividends or otherwise supply funds to Citicorp. The approval of the Office of the Comptroller of the Currency is required if total dividends declared by a national bank in any calendar year exceed net profits (as defined) for that year combined with its retained net profits for the preceding two years. In addition, dividends for such a bank may not be paid in excess of the bank's undivided profits. State-chartered bank subsidiaries are subject to dividend limitations imposed by applicable state law. 71
Citicorp's national and state-chartered bank subsidiaries can declare dividends to their respective parent companies in 2001, without regulatory approval, of approximately $7.2 billion, adjusted by the effect of their net income (loss) for 2001 up to the date of any such dividend declaration. In determining whether and to what extent to pay dividends, each bank subsidiary must also consider the effect of dividend payments on applicable risk-based capital and leverage ratio requirements as well as policy statements of the federal regulatory agencies that indicate that banking organizations should generally pay dividends out of current operating earnings. Consistent with these considerations, Citicorp estimates that its bank subsidiaries can distribute dividends to Citicorp, directly or through their parent holding company, of approximately $6.4 billion of the available $7.2 billion, adjusted by the effect of their net income (loss) up to the date of any such dividend declaration. Citicorp also receives dividends from its nonbank subsidiaries. These nonbank subsidiaries are generally not subject to regulatory restrictions on their payment of dividends except that the approval of the Office of Thrift Supervision (OTS) may be required if total dividends declared by a savings association in any calendar year exceed amounts specified by that agency's regulations. Citicorp is subject to risk-based capital and leverage guidelines issued by the FRB. CITICORP RATIOS <TABLE> <CAPTION> At Year-End 2000 1999 -------- -------- <S> <C> <C> Tier 1 capital........................................ 8.41% 7.32% Total capital (Tier 1 and Tier 2)..................... 12.29 10.69 Leverage(1)........................................... 7.54 6.51 Common stockholder's equity........................... 8.68 7.52 ===== ===== </TABLE> - ------------------------ (1) Tier 1 capital divided by adjusted average assets. Citicorp maintained a strong capital position during 2000. Total capital (Tier 1 and Tier 2) amounted to $58.0 billion at December 31, 2000, representing 12.29% of net risk-adjusted assets. This compares with $42.5 billion and 10.69% at December 31, 1999. Tier 1 capital of $39.7 billion at year-end 2000 represented 8.41% of net risk-adjusted assets, compared with $29.1 billion and 7.32% at year-end 1999. The Tier 1 capital ratio at year-end 2000 was above Citicorp's target range of 8.00% to 8.30%. See Note 18 of Notes to Consolidated Financial Statements. ASSOCIATES FIRST CAPITAL CORPORATION (ASSOCIATES) Associates maintains a combination of unutilized bilateral and syndicated credit facilities to support its short-term borrowings. These facilities, which have maturities ranging from 2001 through 2005, provide a means of managing liquidity and ensure that funds are always available to satisfy maturing short-term obligations. At December 31, 2000, these facilities provided coverage of approximately 75% of Associates' commercial paper borrowings and utilized uncommitted lines of credit. In connection with Citigroup's November 30, 2000 acquisition of Associates in which Associates became a wholly owned subsidiary of Citicorp, Citicorp guaranteed various debt obligations of Associates, including those arising under these facilities. Under these facilities, Citicorp is required to maintain a certain level of consolidated stockholder's equity. At December 31, 2000, this requirement was exceeded by $32.6 billion. CITIFINANCIAL CREDIT COMPANY (CCC) CCC, an indirect subsidiary of Citicorp, has five-year revolving credit facilities in the amount of $3.4 billion that expire in 2002. Citicorp guarantees various debt obligations of CCC, including those 72
arising under these facilities. Under these facilities, Citicorp is required to maintain a certain level of consolidated stockholder's equity (as defined in the agreement). At December 31, 2000, this requirement was exceeded by approximately $32.6 billion. At December 31, 2000, there were no borrowings outstanding under these facilities. TRAVELERS PROPERTY CASUALTY CORP. (TPC) TPC has a five-year revolving credit facility in the amount of $250 million with a syndicate of banks that expires in December 2001. Under this facility TPC is required to maintain a certain level of consolidated stockholders' equity (as defined in the agreement). At December 31, 2000, this requirement was exceeded by approximately $5.6 billion. At December 31, 2000, there were no borrowings outstanding under this facility. TPC's insurance subsidiaries are subject to various regulatory restrictions that limit the maximum amount of dividends available to be paid to their parent without prior approval of insurance regulatory authorities. A maximum of $1.2 billion is available by the end of the year 2001 for such dividends without prior approval of the Connecticut Insurance Department. SALOMON SMITH BARNEY HOLDINGS INC. (SALOMON SMITH BARNEY) Salomon Smith Barney's total assets were $238 billion at December 31,2000, compared to $221 billion at year-end 1999. Due to the nature of Salomon Smith Barney's trading activities it is not uncommon for asset levels to fluctuate from period to period. At December 31, 2000, approximately 39% of these assets represent trading securities, commodities, and derivatives used for proprietary trading and to facilitate customer transactions, and approximately 43% of these assets were related to collateralized financing transactions where securities are bought, borrowed, sold, and lent in generally offsetting amounts. A significant portion of the remainder of the assets represented receivables from brokers, dealers, clearing organizations, and customers that relate to securities transactions in the process of being settled. The carrying values of the majority of Salomon Smith Barney's securities inventories are adjusted daily to reflect current prices. See Notes 1, 5, 6, 7, 8, and 23 of Notes to the Consolidated Financial Statements for a further description of these assets. Salomon Smith Barney's assets are financed through a number of sources including long and short-term unsecured borrowings, the financing transactions described above, and payables to brokers, dealers, and customers. The highly liquid nature of these assets provides Salomon Smith Barney with flexibility in financing and managing its business. Salomon Smith Barney monitors and evaluates the adequacy of its capital and borrowing base on a daily basis in order to allow for flexibility in its funding, to maintain liquidity, and to ensure that its capital base supports the regulatory capital requirements of its subsidiaries. Salomon Smith Barney funds its operations through the use of secured and unsecured short-term borrowings, long-term borrowings and TruPS.-Registered Trademark- Secured short-term financing, including repurchase agreements and secured loans, is Salomon Smith Barney's principal funding source. Unsecured short-term borrowings provide a source of short-term liquidity and are also utilized as an alternative to secured financing when they represent a cheaper funding source. Sources of short-term unsecured borrowings include commercial paper, unsecured bank borrowings and letters of credit, deposit liabilities, promissory notes, and corporate loans. Salomon Smith Barney has a $5.0 billion 364-day committed uncollateralized revolving line of credit that extends through May 2001. Salomon Smith Barney may borrow under this revolving credit facility at various interest rate options (LIBOR, CD, or base rate) and compensates the banks for this facility through commitment fees. Under this facility Salomon Smith Barney is required to maintain a certain level of consolidated adjusted net worth (as defined in the agreement). At December 31, 2000, this requirement was exceeded by approximately $4.3 billion. At December 31, 2000, there were no 73
borrowings outstanding under this facility. Salomon Smith Barney also has substantial borrowing arrangements consisting of facilities that it has been advised are available, but where no contractual lending obligation exists. These arrangements are reviewed on an ongoing basis to ensure flexibility in meeting short-term requirements. Unsecured term debt is a significant component of Salomon Smith Barney's long-term capital. Long-term debt totaled $19.7 billion at December 31, 2000 and $18.0 billion at December 31,1999. Salomon Smith Barney utilizes interest rate swaps to convert the majority of its fixed rate long-term debt used to fund inventory-related working capital requirements into variable rate obligations. Long-term debt issuances denominated in currencies other than the U.S. dollar that are not used to finance assets in the same currency are effectively converted to U.S. dollar obligations through the use of cross-currency swaps and forward currency contracts. Salomon Smith Barney's borrowing relationships are with a broad range of banks, financial institutions and other firms from which it draws funds. The volume of borrowings generally fluctuates in response to changes in the level of financial instruments, commodities and contractual commitments, customer balances, the amount of reverse repurchase transactions outstanding, and securities borrowed transactions. As Salomon Smith Barney's activities increase, borrowings generally increase to fund the additional activities. Availability of financing can vary depending upon market conditions, credit ratings, and the overall availability of credit to the securities industry. Salomon Smith Barney seeks to expand and diversify its funding mix as well as its creditor sources. Concentration levels for these sources, particularly for short-term lenders, are closely monitored both in terms of single investor limits and daily maturities. Salomon Smith Barney monitors liquidity by tracking asset levels, collateral and funding availability to maintain flexibility to meet its financial commitments. As a policy, Salomon Smith Barney attempts to maintain sufficient capital and funding sources in order to have the capacity to finance itself on a fully collateralized basis in the event that access to unsecured financing was temporarily impaired. Salomon Smith Barney's liquidity management process includes a contingency funding plan designed to ensure adequate liquidity even if access to unsecured funding sources is severely restricted or unavailable. This plan is reviewed periodically to keep the funding options current and in line with market conditions. The management of this plan includes an analysis that is utilized to determine the ability to withstand varying levels of stress, which could impact Salomon Smith Barney's liquidation horizons and required margins. In addition, Salomon Smith Barney monitors its leverage and capital ratios on a daily basis. THE TRAVELERS INSURANCE COMPANY (TIC) At December 31, 2000, TIC had $29.7 billion of life and annuity product deposit funds and reserves. Of that total, $16.4 billion is not subject to discretionary withdrawal based on contract terms. The remaining $13.3 billion is for life and annuity products that are subject to discretionary withdrawal by the contractholder. Included in the amount that is subject to discretionary withdrawal are $2.9 billion of liabilities that are surrenderable with market value adjustments. Also included are an additional $4.9 billion of the life insurance and individual annuity liabilities which are subject to discretionary withdrawals, and have an average surrender charge of 4.5%. In the payout phase, these funds are credited at significantly reduced interest rates. The remaining $5.5 billion of liabilities are surrenderable without charge. More than 12.7% of these relate to individual life products. These risks would have to be underwritten again if transferred to another carrier, which is considered a significant deterrent against withdrawal by long-term policyholders. Insurance liabilities that are surrendered or withdrawn are reduced by outstanding policy loans, and related accrued interest prior to payout. 74
Scheduled maturities of guaranteed investment contracts (GICs) in 2001, 2002, 2003, 2004, and thereafter are $3.607 billion, $944 million, $809 million, $787 million, and $2.662 billion, respectively. At December 31, 2000, the interest rates credited on GICs had a weighted average rate of 6.75%. TIC is subject to various regulatory restrictions that limit the maximum amount of dividends available to its parent without prior approval of the Connecticut Insurance Department. A maximum of $984 million of statutory surplus is available by the end of the year 2001 for such dividends without the prior approval of the Connecticut Insurance Department. INSURANCE INDUSTRY-RISK BASED CAPITAL The National Association of Insurance Commissioners (NAIC) adopted risk-based capital (RBC) requirements for life insurance companies and for property and casualty insurance companies. The RBC requirements are to be used as minimum capital requirements by the NAIC and states to identify companies that merit further regulatory action. The formulas have not been designed to differentiate among adequately capitalized companies that operate with levels of capital higher than RBC requirements. Therefore, it is inappropriate and ineffective to use the formulas to rate or to rank such companies. At December 31, 2000 and 1999, all of the Company's life and property & casualty companies had adjusted capital in excess of amounts requiring any regulatory action. 75
REPORT OF MANAGEMENT The management of Citigroup is responsible for the preparation and fair presentation of the financial statements and other financial information contained in this annual report. The accompanying financial statements have been prepared in conformity with generally accepted accounting principles appropriate in the circumstances. Where amounts must be based on estimates and judgments, they represent the best estimates and judgments of management. The financial information appearing throughout this annual report is consistent with that in the financial statements. The management of Citigroup is also responsible for maintaining effective internal control over financial reporting. Management establishes an environment that fosters strong controls, and it designs business processes to identify and respond to risk. Management maintains a comprehensive system of controls intended to ensure that transactions are executed in accordance with management's authorization, assets are safeguarded, and financial records are reliable. Management also takes steps to see that information and communication flows are effective and to monitor performance, including performance of internal control procedures. Citigroup's accounting policies and internal control are under the general oversight of the Board of Directors, acting through the Audit Committee of the Board. The Committee is composed entirely of directors who are not officers or employees of Citigroup. The Committee reviews reports by internal audit covering its extensive program of audit and risk reviews worldwide. In addition, KPMG LLP, independent auditors, are engaged to audit Citigroup's financial statements. KPMG LLP obtains and maintains an understanding of Citigroup's internal control and procedures for financial reporting and conducts such tests and other auditing procedures as it considers necessary in the circumstances to express the opinion in its report that follows. KPMG LLP has full access to the Audit Committee, with no members of management present, to discuss its audit and its findings as to the integrity of Citigroup's financial reporting and the effectiveness of internal control. Management recognizes that there are inherent limitations in the effectiveness of any system of internal control, and accordingly, even effective internal control can provide only reasonable assurance with respect to financial statement preparation. However, management believes that Citigroup maintained effective internal control over financial reporting as of December 31, 2000. <TABLE> <S> <C> [LOGO] [LOGO] Sanford I. Weill Todd S. Thomson Chairman and Chief Executive Officer Chief Financial Officer </TABLE> 76
INDEPENDENT AUDITORS' REPORT [LOGO] The Board of Directors and Stockholders Citigroup Inc.: We have audited the accompanying consolidated statement of financial position of Citigroup Inc. and subsidiaries as of December 31, 2000 and 1999, and the related consolidated statements of income, changes in stockholders' equity and cash flows for each of the years in the three-year period ended December 31, 2000. These consolidated financial statements are the responsibility of the Company's management. Our responsibility is to express an opinion on these consolidated financial statements based on our audits. We conducted our audits in accordance with auditing standards generally accepted in the United States of America. Those standards require that we plan and perform the audit to obtain reasonable assurance about whether the financial statements are free of material misstatement. An audit includes examining, on a test basis, evidence supporting the amounts and disclosures in the financial statements. An audit also includes assessing the accounting principles used and significant estimates made by management, as well as evaluating the overall financial statement presentation. We believe that our audits provide a reasonable basis for our opinion. In our opinion, the consolidated financial statements referred to above present fairly, in all material respects, the financial position of Citigroup Inc. and subsidiaries as of December 31, 2000 and 1999, and the results of their operations and their cash flows for each of the years in the three-year period ended December 31, 2000, in conformity with accounting principles generally accepted in the United States of America. As discussed in Note 1 to the consolidated financial statements, in 1999 the Company changed its methods of accounting for insurance-related assessments, accounting for insurance and reinsurance contracts that do not transfer insurance risk, and accounting for the costs of start-up activities. KPMG LLG New York, New York January 16, 2001 77
CONSOLIDATED FINANCIAL STATEMENTS CITIGROUP INC. AND SUBSIDIARIES CONSOLIDATED STATEMENT OF INCOME <TABLE> <CAPTION> YEAR ENDED DECEMBER 31, ------------------------------ In Millions of Dollars, Except Per Share Amounts 2000 1999 1998 -------- -------- -------- <S> <C> <C> <C> REVENUES Loan interest, including fees............................... $ 37,377 $33,018 $31,144 Other interest and dividends................................ 27,562 21,971 23,392 Insurance premiums.......................................... 12,429 11,504 10,324 Commissions and fees........................................ 16,363 13,229 12,395 Principal transactions...................................... 5,981 5,160 1,780 Asset management and administration fees.................... 5,338 4,164 2,292 Realized gains from sales of investments.................... 806 541 841 Other income................................................ 5,970 4,809 3,757 -------- ------- ------- Total revenues.............................................. 111,826 94,396 85,925 Interest expense............................................ 36,638 28,674 30,692 -------- ------- ------- TOTAL REVENUES, NET OF INTEREST EXPENSE..................... 75,188 65,722 55,233 -------- ------- ------- BENEFITS, CLAIMS, AND CREDIT LOSSES Policyholder benefits and claims expense.................... 10,147 9,120 8,527 Provision for credit losses................................. 5,339 4,760 4,261 -------- ------- ------- TOTAL BENEFITS, CLAIMS, AND CREDIT LOSSES................... 15,486 13,880 12,788 -------- ------- ------- OPERATING EXPENSES Non-insurance compensation and benefits..................... 18,633 16,169 14,615 Insurance underwriting, acquisition, and operating.......... 3,643 3,765 3,372 Restructuring-related items and merger-related costs........ 759 (53) 795 Other operating expenses.................................... 15,524 13,810 12,578 -------- ------- ------- TOTAL OPERATING EXPENSES.................................... 38,559 33,691 31,360 -------- ------- ------- INCOME BEFORE INCOME TAXES, MINORITY INTEREST AND CUMULATIVE EFFECT OF ACCOUNTING CHANGES.............................. 21,143 18,151 11,085 Provision for income taxes.................................. 7,525 6,530 3,907 Minority interest, net of income taxes...................... 99 251 228 -------- ------- ------- INCOME BEFORE CUMULATIVE EFFECT OF ACCOUNTING CHANGES....... 13,519 11,370 6,950 -------- ------- ------- Cumulative effect of accounting changes..................... -- (127) -- -------- ------- ------- NET INCOME.................................................. $ 13,519 $11,243 $ 6,950 ======== ======= ======= BASIC EARNINGS PER SHARE Income before cumulative effect of accounting changes....... $ 2.69 $ 2.26 $ 1.35 Cumulative effect of accounting changes..................... -- (0.03) -- -------- ------- ------- NET INCOME.................................................. $ 2.69 $ 2.23 $ 1.35 ======== ======= ======= Weighted average common shares outstanding.................. 4,977.0 4,979.2 4,995.1 -------- ------- ------- DILUTED EARNINGS PER SHARE Income before cumulative effect of accounting changes....... $ 2.62 $ 2.19 $ 1.31 Cumulative effect of accounting changes..................... -- (0.02) -- -------- ------- ------- NET INCOME.................................................. $ 2.62 $ 2.17 $ 1.31 ======== ======= ======= Adjusted weighted average common shares outstanding......... 5,122.2 5,127.8 5,143.7 ======== ======= ======= </TABLE> See Notes to Consolidated Financial Statements. 78
CITIGROUP INC. AND SUBSIDIARIES CONSOLIDATED STATEMENT OF FINANCIAL POSITION <TABLE> <CAPTION> DECEMBER 31, ------------------- In Millions of Dollars 2000 1999 -------- -------- <S> <C> <C> ASSETS Cash and due from banks (including segregated cash and other deposits)................................................. $ 14,621 $ 15,978 Deposits at interest with banks............................. 16,164 12,266 Federal funds sold and securities borrowed or purchased under agreements to resell................................ 105,877 112,655 Brokerage receivables....................................... 25,696 22,219 Trading account assets (including $83,821 pledged to creditors at December 31, 2000)........................... 132,513 107,061 Investments (including $3,354 pledged to creditors at December 31, 2000)........................................ 120,122 116,052 Loans, net of unearned income Consumer.................................................. 228,879 194,569 Commercial................................................ 138,143 120,332 -------- -------- Loans, net of unearned income............................... 367,022 314,901 Allowance for credit losses............................... (8,961) (8,853) -------- -------- Total loans, net............................................ 358,061 306,048 Reinsurance recoverables.................................... 10,541 9,705 Separate and variable accounts.............................. 24,947 23,118 Other assets................................................ 93,668 70,482 -------- -------- TOTAL ASSETS................................................ $902,210 $795,584 ======== ======== LIABILITIES Non-interest-bearing deposits in U.S. offices............... $ 21,694 $ 19,506 Interest-bearing deposits in U.S. offices................... 58,913 49,052 Non-interest-bearing deposits in offices outside the U.S.... 13,811 12,021 Interest-bearing deposits in offices outside the U.S........ 206,168 180,994 -------- -------- Total deposits.............................................. 300,586 261,573 Federal funds purchased and securities loaned or sold under agreements to repurchase.................................. 110,625 92,591 Brokerage payables.......................................... 15,882 13,438 Trading account liabilities................................. 85,107 90,500 Contractholder funds and separate and variable accounts..... 44,884 41,335 Insurance policy and claims reserves........................ 44,666 43,842 Investment banking and brokerage borrowings................. 18,227 13,719 Short-term borrowings....................................... 51,675 44,339 Long-term debt.............................................. 111,778 88,481 Other liabilities........................................... 47,654 42,556 Citigroup or subsidiary obligated mandatorily redeemable securities of subsidiary trusts holding solely junior subordinated debt securities of--Parent................... 2,300 2,300 --Subsidiary............... 2,620 2,620 -------- -------- STOCKHOLDERS' EQUITY Preferred stock ($1.00 par value; authorized shares: 30 million), at aggregate liquidation value................. 1,745 1,895 Common stock ($.01 par value; authorized shares: 10 billion), issued shares: 2000--5,351,143,583 SHARES and 1999--5,350,977,319 shares................................ 54 54 Additional paid-in capital.................................. 16,504 15,307 Retained earnings........................................... 58,862 47,997 Treasury stock, at cost: 2000--328,921,189 SHARES and 1999--326,918,585 shares.................................. (10,213) (7,662) Accumulated other changes in equity from nonowner sources... 123 1,155 Unearned compensation....................................... (869) (456) -------- -------- TOTAL STOCKHOLDERS' EQUITY.................................. 66,206 58,290 -------- -------- TOTAL LIABILITIES AND STOCKHOLDERS' EQUITY.................. $902,210 $795,584 ======== ======== </TABLE> See Notes to Consolidated Financial Statements. 79
CITIGROUP INC. AND SUBSIDIARIES CONSOLIDATED STATEMENT OF CHANGES IN STOCKHOLDERS' EQUITY <TABLE> <CAPTION> YEAR ENDED DECEMBER 31, ------------------------------------------------------------------ AMOUNTS SHARES ------------------------------ --------------------------------- In Millions of Dollars Except Shares in Thousands 2000 1999 1998 2000 1999 1998 -------- -------- -------- --------- --------- --------- <S> <C> <C> <C> <C> <C> <C> PREFERRED STOCK AT AGGREGATE LIQUIDATION VALUE Balance, beginning of year................................ $ 1,895 $ 2,274 $ 3,346 6,831 8,327 14,812 Redemption or retirement of preferred stock............... (150) (379) (1,072) (598) (1,496) (6,485) -------- ------- ------- --------- --------- --------- Balance, end of year...................................... 1,745 1,895 2,274 6,233 6,831 8,327 -------- ------- ------- --------- --------- --------- COMMON STOCK AND ADDITIONAL PAID-IN CAPITAL Balance, beginning of year................................ 15,361 14,210 16,504 5,350,977 5,338,223 5,533,833 Employee benefit plans.................................... 1,119 1,036 537 -- 381 278 Issuance of common stock.................................. -- -- 1,267 -- -- 25,375 Conversion of redeemable preferred stock to common stock................................................... -- 140 293 -- 12,489 26,375 Exercise of common stock warrants......................... -- -- 131 -- -- 20,260 Retirement of treasury stock.............................. -- -- (4,497) -- -- (267,851) Other..................................................... 78 (25) (25) 167 (116) (47) -------- ------- ------- --------- --------- --------- Balance, end of year...................................... 16,558 15,361 14,210 5,351,144 5,350,977 5,338,223 -------- ------- ------- --------- --------- --------- RETAINED EARNINGS Balance, beginning of year................................ 47,997 38,893 33,923 Net income................................................ 13,519 11,243 6,950 Common dividends.......................................... (2,535) (1,990) (1,764) Preferred dividends....................................... (119) (149) (216) -------- ------- ------- Balance, end of year...................................... 58,862 47,997 38,893 -------- ------- ------- TREASURY STOCK, AT COST Balance, beginning of year................................ (7,662) (4,829) (6,605) (326,918) (288,935) (465,744) Issuance of shares pursuant to employee benefit plans..... 1,465 1,116 432 83,601 78,469 36,629 Treasury stock acquired................................... (4,066) (3,954) (3,139) (87,149) (116,697) (126,742) Retirement of treasury stock.............................. -- -- 4,497 -- -- 267,851 Other..................................................... 50 5 (14) 1,544 245 (929) -------- ------- ------- --------- --------- --------- Balance, end of year...................................... (10,213) (7,662) (4,829) (328,922) (326,918) (288,935) -------- ------- ------- --------- --------- --------- ACCUMULATED OTHER CHANGES IN EQUITY FROM NONOWNER SOURCES Balance, beginning of year................................ 1,155 984 1,250 Net change in unrealized gains and losses on investment securities, net of tax.................................. (674) 214 (264) Foreign currency translations adjustment, net of tax...... (358) (43) (2) -------- ------- ------- Balance, end of year...................................... 123 1,155 984 -------- ------- ------- UNEARNED COMPENSATION Balance, beginning of year................................ (456) (497) (462) Net issuance of restricted stock.......................... (1,055) (380) (420) Restricted stock amortization............................. 642 421 385 -------- ------- ------- Balance, end of year...................................... (869) (456) (497) -------- ------- ------- TOTAL COMMON STOCKHOLDERS' EQUITY AND COMMON SHARES OUTSTANDING............................................. 64,461 56,395 48,761 5,022,222 5,024,059 5,049,288 -------- ------- ------- ========= ========= ========= TOTAL STOCKHOLDERS' EQUITY................................ $ 66,206 $58,290 $51,035 ======== ======= ======= SUMMARY OF CHANGES IN EQUITY FROM NONOWNER SOURCES Net income................................................ $ 13,519 $11,243 $ 6,950 Other changes in equity from nonowner sources, net of tax..................................................... (1,032) 171 (266) -------- ------- ------- TOTAL CHANGES IN EQUITY FROM NONOWNER SOURCES............. $ 12,487 $11,414 $ 6,684 -------- ------- ------- </TABLE> See Notes to Consolidated Financial Statements. 80
CITIGROUP INC. AND SUBSIDIARIES CONSOLIDATED STATEMENT OF CASH FLOWS <TABLE> <CAPTION> YEAR ENDED DECEMBER 31, --------------------------------- In Millions of Dollars 2000 1999 1998 --------- --------- --------- <S> <C> <C> <C> CASH FLOWS FROM OPERATING ACTIVITIES Net income.................................................. $ 13,519 $ 11,243 $ 6,950 Adjustments to reconcile net income to net cash provided by operating activities: Amortization of deferred policy acquisition costs and value of insurance in force............................. 1,676 1,613 1,509 Additions to deferred policy acquisition costs............ (2,154) (1,961) (1,784) Depreciation and amortization............................. 2,648 2,226 1,810 Deferred tax provision (benefit).......................... 1,537 598 (210) Provision for credit losses............................... 5,339 4,760 4,261 Change in trading account assets.......................... (25,452) 9,928 63,099 Change in trading account liabilities..................... (5,393) (3,848) (32,804) Change in Federal funds sold and securities borrowed or purchased under agreements to resell.................... 6,778 (17,824) 25,136 Change in Federal funds purchased and securities loaned or sold under agreements to repurchase..................... 18,034 11,566 (51,078) Change in brokerage receivables net of brokerage payables................................................ (1,033) (4,926) (991) Change in insurance policy and claims reserves............ 824 405 112 Net gains on sales of investments......................... (806) (541) (841) Venture capital activity.................................. (1,044) (863) (698) Restructuring-related items and merger-related costs...... 759 (53) 795 Cumulative effect of accounting changes, net of tax....... -- 127 -- Other, net................................................ (12,559) (1,227) (8,527) --------- --------- --------- TOTAL ADJUSTMENTS........................................... (10,846) (20) (211) --------- --------- --------- NET CASH PROVIDED BY OPERATING ACTIVITIES................... 2,673 11,223 6,739 --------- --------- --------- CASH FLOWS FROM INVESTING ACTIVITIES Change in deposits at interest with banks................... (3,898) (573) 1,390 Change in loans............................................. (82,985) (120,970) (176,466) Proceeds from sales of loans................................ 32,580 94,677 150,037 Purchases of investments.................................... (103,461) (92,495) (90,408) Proceeds from sales of investments.......................... 67,561 49,678 46,798 Proceeds from maturities of investments..................... 34,774 35,525 34,220 Other investments, primarily short-term, net................ (3,086) 2,677 (4,237) Capital expenditures on premises and equipment.............. (2,249) (1,750) (2,135) Proceeds from sales of premises and equipment, subsidiaries and affiliates, and repossessed assets.................... 1,232 3,437 764 Business acquisitions....................................... (8,843) (6,321) (6,573) --------- --------- --------- NET CASH USED IN INVESTING ACTIVITIES....................... (68,375) (36,115) (46,610) --------- --------- --------- CASH FLOWS FROM FINANCING ACTIVITIES Dividends paid.............................................. (2,654) (2,139) (1,988) Issuance of common stock.................................... 958 758 1,685 Issuance of mandatorily redeemable securities of subsidiary trusts.................................................... -- 600 1,325 Redemption of preferred stock............................... (150) (388) (1,040) Treasury stock acquired..................................... (4,066) (3,954) (3,139) Stock tendered for payment of withholding taxes............. (593) (496) (520) Issuance of long-term debt.................................. 43,527 18,537 27,561 Payments and redemptions of long-term debt.................. (22,330) (18,835) (17,356) Change in deposits.......................................... 39,013 32,160 29,546 Change in short-term borrowings including investment banking and brokerage borrowings.................................. 9,851 (580) 3,662 Contractholder fund deposits................................ 6,077 5,933 4,422 Contractholder fund withdrawals............................. (4,758) (5,028) (2,579) --------- --------- --------- NET CASH PROVIDED BY FINANCING ACTIVITIES................... 64,875 26,568 41,579 --------- --------- --------- EFFECT OF EXCHANGE RATE CHANGES ON CASH AND DUE FROM BANKS..................................................... (530) (98) (82) --------- --------- --------- Change in cash and due from banks........................... (1,357) 1,578 1,626 Cash and due from banks at beginning of period.............. 15,978 14,400 12,774 --------- --------- --------- Cash and due from banks at end of period.................... $ 14,621 $ 15,978 $ 14,400 ========= ========= ========= SUPPLEMENTAL DISCLOSURE OF CASH FLOW INFORMATION Cash paid during the period for income taxes................ $ 5,357 $ 4,314 $ 3,445 Cash paid during the period for interest.................... 34,924 27,502 29,501 Non-cash investing activities--transfers to repossessed assets.................................................... 820 862 688 Non-cash effects of accounting for the conversion of investments in Nikko Securities Co., Ltd.................. 702 -- -- ========= ========= ========= </TABLE> See Notes to Consolidated Financial Statements. 81
CITIGROUP INC. AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS 1. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES PRINCIPLES OF CONSOLIDATION. The consolidated financial statements include the accounts of Citigroup and its subsidiaries (the Company). Twenty-to-fifty percent-owned affiliates, other than investments of designated venture capital subsidiaries, are accounted for under the equity method, and the pro rata share of their income (loss) is included in other income. Income from investments in less than twenty percent-owned companies is generally recognized when dividends are received. Gains and losses on disposition of branches, subsidiaries, affiliates, and other investments and charges for management's estimate of impairment in their value that is other than temporary, such that recovery of the carrying amount is deemed unlikely, are included in other income. Goodwill and other intangible assets are amortized over their estimated useful lives, subject to periodic review for impairment that is other than temporary. If it is determined that enterprise level goodwill is unlikely to be recovered, impairment is measured on a discounted cash flow basis. The Company recognizes a gain or loss in the consolidated statement of income when a subsidiary issues its own stock to a third party at a price higher or lower than the Company's proportionate carrying amount. FOREIGN CURRENCY TRANSLATION. Assets and liabilities denominated in non-U.S. dollar currencies are translated into U.S. dollar equivalents using year-end spot foreign exchange rates. Revenues and expenses are translated monthly at amounts which approximate weighted average exchange rates, with resulting gains and losses included in income. The effects of translating operations with a functional currency other than the U.S. dollar are included in stockholders' equity along with related hedge and tax effects. The effects of translating operations with the U.S. dollar as the functional currency, including those in highly inflationary environments, are included in other income along with related hedge effects. Hedges of foreign currency exposures include forward currency contracts and designated issues of non-U.S. dollar debt. RISKS AND UNCERTAINTIES. The preparation of the consolidated financial statements requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities and disclosure of contingent assets and liabilities at the date of the consolidated financial statements and the reported amounts of revenues and expenses during the reporting period. Actual results could differ from those estimates. CASH FLOWS. Cash equivalents are defined as those amounts included in cash and due from banks. Cash flows from risk management activities are classified in the same category as the related assets and liabilities. INVESTMENTS include fixed maturity and equity securities. Fixed maturities includes bonds, notes and redeemable preferred stocks, as well as certain loan-backed and structured securities subject to prepayment risk. Equity securities include common and non-redeemable preferred stocks. Fixed maturities classified as "held to maturity" represent securities that the Company has both the ability and the intent to hold until maturity and are carried at amortized cost. Fixed maturity securities classified as "available for sale" and marketable equity securities are carried at fair values, based primarily on quoted market prices or if quoted market prices are not available, discounted expected cash flows using market rates commensurate with the credit quality and maturity of the investment, with unrealized gains and losses and related hedge effects reported in a separate component of stockholders' equity, net of applicable income taxes. Declines in fair value that are determined to be other than temporary are charged to earnings. Accrual of income is suspended on fixed maturities that are in default, or on which it is likely that future interest payments will not be made as scheduled. 82
CITIGROUP INC. AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED) 1. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (CONTINUED) Fixed maturities subject to prepayment risk are accounted for using the retrospective method, where the principal amortization and effective yield are recalculated each period based on actual historical and projected future cash flows. Realized gains and losses on sales of investments are included in earnings on a specific identified cost basis. Citigroup's venture capital subsidiaries include subsidiaries registered as Small Business Investment Companies and other subsidiaries that engage exclusively in venture capital activities. Venture capital investments are carried at fair value, with changes in fair value recognized in other income. The fair values of publicly-traded securities held by these subsidiaries are generally based upon quoted market prices. In certain situations, including thinly-traded securities, large-block holdings, restricted shares or other special situations, the quoted market price is adjusted to produce an estimate of the attainable fair value for the securities. For securities held by these subsidiaries that are not publicly traded, estimates of fair value are made based upon review of the investee's financial results, condition, and prospects, together with comparisons to similar companies for which quoted market prices are available. SECURITIES BORROWED AND SECURITIES LOANED are recorded at the amount of cash advanced or received. With respect to securities loaned, the Company receives cash collateral in an amount in excess of the market value of securities loaned. The Company monitors the market value of securities borrowed and loaned on a daily basis with additional collateral obtained as necessary. REPURCHASE AND RESALE AGREEMENTS are treated as collateralized financing transactions and are carried at the amounts at which the securities will be subsequently reacquired or resold, including accrued interest, as specified in the respective agreements. The Company's policy is to take possession of securities purchased under agreements to resell. The market value of securities to be repurchased and resold is monitored, and additional collateral is obtained where appropriate to protect against credit exposure. TRADING ACCOUNT ASSETS AND LIABILITIES include securities, commodities and derivatives and are recorded at either market value or, when market prices are not readily available, fair value, which is determined under an alternative approach, such as matrix or model pricing. Obligations to deliver securities sold but not yet purchased are also valued at market and included in trading account liabilities. The determination of market or fair value considers various factors, including: closing exchange or over-the-counter market price quotations; time value and volatility factors underlying options, warrants and derivatives; price activity for equivalent or synthetic instruments; counterparty credit quality; the potential impact on market prices or fair value of liquidating the Company's positions in an orderly manner over a reasonable period of time under current market conditions; and derivatives transaction maintenance costs during that period. Interest expense on trading account liabilities is reported as a reduction of interest revenues. Commodities include physical quantities of commodities involving future settlement or delivery, and related gains or losses are reported as principal transactions. Derivatives used for trading purposes include interest rate, currency, equity, credit, and commodity swap agreements, options, caps and floors, warrants, and financial and commodity futures and forward contracts. The fair values (unrealized gains and losses) associated with derivatives are reported net by counterparty, provided a legally enforceable master netting agreement exists, and are netted across products and against cash collateral when such provisions are stated in the master netting agreement. 83
CITIGROUP INC. AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED) 1. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (CONTINUED) Derivatives in a net receivable position, as well as options owned and warrants held, are reported as trading account assets. Similarly, derivatives in a net payable position, as well as options written and warrants issued, are reported as trading account liabilities. Revenues generated from derivative instruments used for trading purposes are reported as principal transactions and include realized gains and losses as well as unrealized gains and losses resulting from changes in the market or fair value of such instruments. COMMISSIONS, UNDERWRITING AND PRINCIPAL TRANSACTIONS revenues and related expenses are recognized in income on a trade date basis. CONSUMER LOANS includes loans managed by the Global Consumer business, The Citigroup Private Bank and Associates. Consumer loans are generally written off not later than a predetermined number of days past due primarily on a contractual basis, or earlier in the event of bankruptcy. The number of days is set at an appropriate level by loan product and by country. The policy for suspending accruals of interest on consumer loans varies depending on the terms, security and loan loss experience characteristics of each product, and in consideration of write-off criteria in place. COMMERCIAL LOANS represent loans managed by the Global Corporate and Investment Bank and Associates. Commercial loans are identified as impaired and placed on a cash (nonaccrual) basis when it is determined that the payment of interest or principal is doubtful of collection, or when interest or principal is past due for 90 days or more, except when the loan is well secured and in the process of collection. Any interest accrued is reversed and charged against current earnings, and interest is thereafter included in earnings only to the extent actually received in cash. When there is doubt regarding the ultimate collectibility of principal, all cash receipts are thereafter applied to reduce the recorded investment in the loan. Impaired commercial loans are written down to the extent that principal is judged to be uncollectible. Impaired collateral-dependent loans where repayment is expected to be provided solely by the underlying collateral and there are no other available and reliable sources of repayment are written down to the lower of cost or collateral value. Cash-basis loans are returned to an accrual status when all contractual principal and interest amounts are reasonably assured of repayment and there is a sustained period of repayment performance in accordance with the contractual terms. LEASE FINANCING TRANSACTIONS. Loans include the Company's share of aggregate rentals on lease financing transactions and residual values net of related unearned income. Lease financing transactions substantially represent direct financing leases and also include leveraged leases. Unearned income is amortized under a method which substantially results in an approximate level rate of return when related to the unrecovered lease investment. Gains and losses from sales of residual values of leased equipment are included in other income. SECURITIZATIONS include sales of credit card receivables, mortgages and home equity loans. Revenue on securitized credit card receivables is recorded monthly as earned over the term of each securitization transaction, which may range up to 12 years. The revolving nature of the receivables sold and the monthly recognition of revenue result in a pattern of recognition that is similar to the pattern that would be experienced if the receivables had not been sold. Net revenue on securitized credit card receivables is collected over the life of each sale transaction. The net revenue is based upon the sum of finance charges and fees received from cardholders and 84
CITIGROUP INC. AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED) 1. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (CONTINUED) interchange revenue earned on cardholder transactions, less the sum of the yield paid to investors, credit losses, transaction costs, and a contractual servicing fee, which is also retained by certain Citigroup subsidiaries as servicers. The Company retains a seller's interest in the credit card receivables transferred to the trust, which is not in securitized form. Accordingly, the seller's interest is carried on a historical cost basis and classified as consumer loans. Retained interests in securitized mortgage loans are classified as investments. Servicing rights retained in the securitization of mortgage and home equity loans are measured by allocating the carrying value of the loans between the assets sold and the interest retained, based on the relative fair value at the date of the securitization. The fair market values are determined using either financial models, quoted market prices or sales of similar assets. Gain or loss on sale is recognized at the time of the securitizations. Mortgage servicing assets are amortized over the expected life of the loan and are evaluated periodically for impairment. LOANS HELD FOR SALE. Credit card and other receivables and mortgage loans originated for sale are classified as loans held for sale, which are accounted for at the lower of cost or market value in other assets with net credit losses charged to other income. ALLOWANCE FOR CREDIT LOSSES represents management's estimate of probable losses inherent in the portfolio. This evaluation includes an assessment of the ability of borrowers with foreign currency obligations to obtain the foreign exchange necessary for orderly debt servicing. Attribution of the allowance is made for analytical purposes only, and the entire allowance is available to absorb probable credit losses inherent in the portfolio. Additions to the allowance are made by means of the provision for credit losses. Credit losses are deducted from the allowance, and subsequent recoveries are added. Securities received in exchange for loan claims in debt restructurings are initially recorded at fair value, with any gain or loss reflected as a recovery or charge-off to the allowance, and are subsequently accounted for as securities available for sale. Larger-balance, non-homogenous exposures representing significant individual credit exposures are evaluated based upon the borrower's overall financial condition, resources, and payment record; the prospects for support from any financially responsible guarantors; and, if appropriate, the realizable value of any collateral. The allowance for loan losses attributed to these loans is established via a process which begins with estimates of probable loss inherent in the portfolio based upon various statistical analyses. These analyses consider historical and projected default rates and loss severities; internal risk ratings; geographic, industry, and other environmental factors; and model imprecision. Management also considers overall portfolio indicators including trends in internally risk rated exposures, classified exposures, cash-basis loans, and historical and forecasted write-offs; a review of industry, geographic, and portfolio concentrations, including current developments within those segments; and the current business strategy and credit process including credit limit setting and compliance, credit approvals, loan underwriting criteria, and loan workout procedures. Within the allowance for credit losses, a valuation allowance is maintained for larger-balance, non-homogenous loans that have been individually determined to be impaired. This estimate considers all available evidence including, as appropriate, the present value of the expected future cash flows discounted at the loan's contractual effective rate, the secondary market value of the loan, the fair value of collateral, and environmental factors. 85
CITIGROUP INC. AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED) 1. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (CONTINUED) Each portfolio of smaller balance, homogenous loans, including consumer mortgage, installment, revolving credit and most other consumer loans, is collectively evaluated for impairment. The allowance for loan losses attributed to these loans is established via a process which begins with estimates of probable losses inherent in the portfolio, based upon various statistical analyses. These include migration analysis, in which historical delinquency and credit loss experience is applied to the current aging of the portfolio, together with analyses which reflect current trends and conditions. Management also considers overall portfolio indicators including historical credit losses, delinquent, non-performing and classified loans, and trends in volumes and terms of loans; an evaluation of overall credit quality and the credit process, including lending policies and procedures; consideration of economic, geographical, product, and other environmental factors; and model imprecision. REPOSSESSED ASSETS. Upon repossession, loans are adjusted if necessary to the estimated fair value of the underlying collateral and transferred to Repossessed Assets, which is reported in other assets net of a valuation allowance for selling costs and net declines in value as appropriate. RISK MANAGEMENT ACTIVITIES--DERIVATIVES AND FOREIGN EXCHANGE CONTRACTS USED FOR NON-TRADING PURPOSES. The Company manages its exposures to market rate movements outside of its trading activities by modifying the asset and liability mix, either directly or through the use of derivative financial products including interest rate swaps, futures, forwards, and purchased option positions such as interest rate caps, floors, and collars. These end-user derivative contracts include qualifying hedges and qualifying positions that modify the interest rate characteristics of specified financial instruments. Derivative instruments not qualifying as end-user positions are treated as trading positions and carried at fair value. To qualify as a hedge, the swap, futures, forward, or purchased option position must be designated as a hedge and be effective in reducing the market risk of an existing asset, liability, firm commitment, or identified anticipated transaction which is probable to occur. To qualify as a position modifying the interest rate characteristics of an instrument, there must be a documented and approved objective to synthetically alter the market risk characteristics of an existing asset, liability, firm commitment or identified anticipated transaction which is probable to occur, and the swap, forward or purchased option position must be designated as such a position and effective in accomplishing the underlying objective. The foregoing criteria are applied on a decentralized basis, consistent with the level at which market risk is managed, but are subject to various limits and controls. The underlying asset, liability, firm commitment or anticipated transaction may be an individual item or a portfolio of similar items. The effectiveness of these contracts is evaluated on an initial and ongoing basis using quantitative measures of correlation. If a contract is found to be ineffective, it no longer qualifies as an end-user position and any excess gains or losses attributable to such ineffectiveness as well as subsequent changes in fair value are recognized in earnings. End-user contracts are primarily employed in association with on-balance sheet instruments accounted for at amortized cost, including loans, deposits, and long-term debt, and with credit card and other securitizations. These qualifying end-user contracts are accounted for consistent with the risk management strategy as follows. Amounts payable and receivable on interest rate swaps and options are accrued according to the contractual terms and included currently in the related revenue and expense category as an element of the yield on the associated instrument (including the amortization of 86
CITIGROUP INC. AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED) 1. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (CONTINUED) option premiums). Amounts paid or received over the life of futures contracts are deferred until the contract is closed; accumulated deferred amounts on futures contracts and amounts paid or received at settlement of forward contracts are accounted for as elements of the carrying value of the associated instrument, affecting the resulting yield. End-user contracts related to instruments that are carried at fair value are also carried at fair value, with amounts payable and receivable accounted for as an element of the yield on the associated instrument. When related to securities available for sale, fair value adjustments are reported in stockholders' equity, net of tax. If an end-user derivative contract is terminated, any resulting gain or loss is deferred and amortized over the original term of the agreement provided that the effectiveness criteria have been met. If the underlying designated items are no longer held, or if an anticipated transaction is no longer likely to occur, any previously unrecognized gain or loss on the derivative contract is recognized in earnings and the contract is accounted for at fair value with subsequent changes recognized in earnings. Foreign exchange contracts which qualify under applicable accounting guidelines as hedges of foreign currency exposures, including net capital investments outside the U.S., are revalued at the spot rate with any forward premium or discount recognized over the life of the contract in interest revenue or interest expense. Gains and losses on foreign exchange contracts which qualify as a hedge of a firm commitment are deferred and recognized as part of the measurement of the related transaction, unless deferral of a loss would lead to recognizing losses on the transaction in later periods. In 2001 Citigroup adopted Statement of Financial Accounting Standards No. 133 "Accounting for Derivative Instruments and Hedging Activities". This new standard significantly changes the accounting treatment of derivatives and foreign exchange contracts used for non-trading purposes. See Future Application of Accounting Standards--Derivatives and hedge accounting section on page 90 for further explanation. INSURANCE PREMIUMS from long-duration contracts, principally life insurance, are earned when due. Premiums from short-duration insurance contracts are earned over the related contract period. Short-duration contracts include primarily property and casualty, including estimated ultimate premiums on retrospectively rated policies, and credit life and accident and health policies. VALUE OF INSURANCE IN FORCE, included in other assets, represents the actuarially determined present value of anticipated profits to be realized from life and accident and health business on insurance in force at the date of the Company's acquisition of its insurance subsidiaries using the same assumptions that were used for computing related liabilities where appropriate. The value of insurance in force acquired prior to December 31, 1993 is amortized over the premium paying periods in relation to anticipated premiums. The value of insurance in force relating to the 1993 acquisition of The Travelers Corporation (old Travelers) was the actuarially determined present value of the projected future profits discounted at interest rates ranging from 14% to 18% for the business acquired. The value of insurance in force is amortized over the contract period using current interest crediting rates to accrete interest and using amortization methods based on the specified products. Traditional life insurance is amortized over the period of anticipated premiums; universal life in relation to estimated gross profits; and annuity contracts employing a level yield method. The value of insurance in force is reviewed periodically for recoverability to determine if any adjustment is required. 87
CITIGROUP INC. AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED) 1. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (CONTINUED) DEFERRED POLICY ACQUISITION COSTS, included in other assets, for the life business represent the costs of acquiring new business, principally commissions, certain underwriting and agency expenses and the cost of issuing policies. Deferred policy acquisition costs for traditional life business are amortized over the premium-paying periods of the related policies, in proportion to the ratio of the annual premium revenue to the total anticipated premium revenue. Deferred policy acquisition costs of other business lines are generally amortized over the life of the insurance contract or at a constant rate based upon the present value of estimated gross profits expected to be realized. For certain property and casualty lines, acquisition costs (primarily commissions and premium taxes) have been deferred to the extent recoverable from future earned premiums and are amortized ratably over the terms of the related policies. Deferred policy acquisition costs are reviewed to determine if they are recoverable from future income, including investment income, and, if not recoverable, are charged to expense. All other acquisition expenses are charged to operations as incurred. SEPARATE AND VARIABLE ACCOUNTS primarily represent funds for which investment income and investment gains and losses accrue directly to, and investment risk is borne by, the contractholders. Each account has specific investment objectives. The assets of each account are legally segregated and are not subject to claims that arise out of any other business of the Company. The assets of these accounts are generally carried at market value. Amounts assessed to the contractholders for management services are included in revenues. Deposits, net investment income and realized investment gains and losses for these accounts are excluded from revenues, and related liability increases are excluded from benefits and expenses. INSURANCE POLICY AND CLAIMS RESERVES represent liabilities for future insurance policy benefits. Insurance reserves for traditional life insurance, annuities, and accident and health policies have been computed based upon mortality, morbidity, persistency and interest rate assumptions (ranging from 2.5% to 8.1%) applicable to these coverages, including adverse deviation. These assumptions consider Company experience and industry standards and may be revised if it is determined that future experience will differ substantially from that previously assumed. Property-casualty reserves include (1) unearned premiums representing the unexpired portion of policy premiums, and (2) estimated provisions for both reported and unreported claims incurred and related expenses. The reserves are adjusted regularly based on experience. In determining insurance policy and claims reserves, the Company performs a continuing review of its overall position, its reserving techniques and its reinsurance. Reserves for property-casualty insurance losses represent the estimated ultimate cost of all incurred claims and claim adjustment expenses. Since the reserves are based on estimates, the ultimate liability may be more or less than such reserves. The effects of changes in such estimated reserves are included in the results of operations in the period in which the estimates are changed. Such changes may be material to the results of operations and could occur in a future period. CONTRACTHOLDER FUNDS represent receipts from the issuance of universal life, pension investment and certain individual annuity contracts. Such receipts are considered deposits on investment contracts that do not have substantial mortality or morbidity risk. Account balances are increased by deposits received and interest credited and are reduced by withdrawals, mortality charges and administrative expenses charged to the contractholders. Calculations of contractholder account balances for investment contracts reflect lapse, withdrawal and interest rate assumptions (ranging from 3.5% to 10.0%) based 88
CITIGROUP INC. AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED) 1. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (CONTINUED) on contract provisions, the Company's experience and industry standards. Contractholder funds also include other funds that policyholders leave on deposit with the Company. EMPLOYEE BENEFITS EXPENSE includes prior and current service costs of pension and other postretirement benefit plans, which are accrued on a current basis, contributions and unrestricted awards under other employee plans, the amortization of restricted stock awards, and costs of other employee benefits. There are no charges to earnings upon the grant or exercise of fixed stock options or the subscription for or purchase of stock under stock purchase agreements. Compensation expense related to performance-based stock options granted in prior periods was recorded over the periods to the vesting dates. Upon issuance of previously unissued shares under employee plans, proceeds received in excess of par value are credited to additional paid-in capital. Upon issuance of treasury shares, the difference between the proceeds received and the average cost of treasury shares is recorded in additional paid-in capital. INCOME TAXES. Deferred taxes are recorded for the future tax consequences of events that have been recognized in the financial statements or tax returns, based upon enacted tax laws and rates. Deferred tax assets are recognized subject to management's judgment that realization is more likely than not. The Company and its wholly owned domestic non-life insurance subsidiaries file a consolidated federal income tax return. The major life insurance subsidiaries are included in their own consolidated federal income tax return. Citicorp and Associates each filed their own separate consolidated federal income tax returns prior to the respective mergers. EARNINGS PER COMMON SHARE is computed after recognition of preferred stock dividend requirements. Basic earnings per share is computed by dividing income available to common stockholders by the weighted average number of common shares outstanding for the period, excluding restricted stock. Diluted earnings per share reflects the potential dilution that could occur if securities or other contracts to issue common stock were exercised and has been computed after giving consideration to the weighted average dilutive effect of the Company's convertible securities, common stock warrants, stock options and the shares issued under the Company's Capital Accumulation Plan and other restricted stock plans. The Board of Directors on July 18, 2000 declared a four-for-three split in Citigroup's common stock, which was paid in the form of a 33 1/3% stock dividend on August 25, 2000. Prior year information has been restated to reflect the stock split. ACCOUNTING CHANGES INSURANCE-RELATED ASSESSMENTS. During the first quarter of 1999, the Company adopted Statement of Position ("SOP") 97-3, "Accounting by Insurance and Other Enterprises for Insurance-Related Assessments." SOP 97-3 provides guidance for determining when an entity should recognize a liability for guaranty-fund and other insurance-related assessments, how to measure that liability, and when an asset may be recognized for the recovery of such assessments through premium tax offsets or policy surcharges. The initial adoption resulted in a cumulative catch-up adjustment recorded as a charge to earnings of $135 million after-tax and minority interest. DEPOSIT ACCOUNTING. During the first quarter of 1999, the Company adopted SOP 98-7, "Deposit Accounting: Accounting for Insurance and Reinsurance Contracts That Do Not Transfer Insurance 89
CITIGROUP INC. AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED) 1. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (CONTINUED) Risk." SOP 98-7 provides guidance on how to account for insurance and reinsurance contracts that do not transfer insurance risk and applies to all entities and all such contracts, except for long-duration life and health insurance contracts. The method used to account for such contracts is referred to as deposit accounting. The initial adoption resulted in a cumulative catch-up adjustment recorded as a credit to earnings of $23 million after-tax and minority interest. START-UP COSTS. During the first quarter of 1999, the Company adopted SOP 98-5, "Reporting on the Costs of Start-Up Activities." SOP 98-5 requires costs of start-up activities and organization costs to be expensed as incurred. The initial adoption resulted in a cumulative catch-up adjustment recorded as a charge to earnings of $15 million after-tax. ASSET MANAGEMENT FEES. For periods prior to 1999, asset management and administration fees earned by Citicorp subsidiaries are classified as commissions and fees in the consolidated statement of income. FUTURE APPLICATION OF ACCOUNTING STANDARDS DERIVATIVES AND HEDGE ACCOUNTING. On January 1, 2001 Citigroup adopted Statement of Financial Accounting Standards No. 133, "Accounting for Derivative Instruments and Hedging Activities," as amended (SFAS 133), when the rules became effective for calendar year companies. The new rules will change the accounting treatment of derivative contracts (including foreign exchange contracts) that are employed to manage risk outside of Citigroup's trading activities, as well as certain derivative-like instruments embedded in other contracts. The rules require that all derivatives be recorded on the balance sheet at their fair value. The treatment of changes in the fair value of derivatives depends on the character of the transaction. For fair value hedges, in which derivatives hedge the fair value of assets and liabilities, changes in the fair value of derivatives will be reflected in current earnings, together with changes in the fair value of the related hedged item. Citigroup's fair value hedges will primarily include hedges of fixed rate long-term debt, loans and available-for-sale securities. As a result, Citigroup expects that the net amount reflected in current earnings under the new rules will be substantially similar to the amounts under existing accounting practice. For cash flow hedges, in which derivatives hedge the variability of cash flows related to floating rate assets, liabilities or forecasted transactions, the accounting treatment will depend on the effectiveness of the hedge. To the extent these derivatives are effective in offsetting the variability of the hedged cash flows, changes in the derivatives' fair value will not be included in current earnings but will be reported as other changes in stockholders' equity from nonowner sources. These changes in fair value will be included in earnings of future periods when earnings are also affected by the variability of the hedged cash flows. To the extent these derivatives are not effective, changes in their fair values will be immediately included in current earnings. Citigroup's cash flow hedges will primarily include hedges of floating rate credit card receivables and loans and foreign currency denominated funding. As a result, while the earnings impact of cash flow hedges may be similar to existing accounting practice, the amounts included in other changes in stockholders' equity from nonowner sources may vary depending on market conditions. 90
CITIGROUP INC. AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED) 1. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (CONTINUED) For net investment hedges, in which derivatives hedge the foreign currency exposure of a net investment in a foreign operation, the accounting treatment will similarly depend on the effectiveness of the hedge. The effective portion of the change in fair value of the derivative, including any forward premium or discount, is reflected in other changes in stockholders' equity from nonowner sources as part of the foreign currency translation adjustment. The ineffective portion will be reflected in current period earnings. Citigroup uses such derivative contracts as part of its strategy for hedging its net foreign investments. The impact on earnings and other changes in stockholders' equity from nonowner sources is not expected to be materially different from the current accounting practice. Non-trading derivatives that do not qualify as hedges under the new rules will be carried at fair value with changes in value included in current earnings. In order to adopt these new rules, the initial revaluation of these derivatives along with the initial revaluations of other items discussed in the preceding paragraphs, are required to be recorded as cumulative effects of a change in accounting principle, after tax, either in net income if the hedging relationship could have been considered a fair value type hedge prior to adoption or in other changes in stockholders' equity from nonowner sources, if the hedging relationship could have been considered a cash flow type hedge prior to adoption. The initial transition adjustments required to adopt SFAS 133 are not significant. Citigroup will likely change certain risk management strategies outside of its trading activities, and it also anticipates a significant increase in the complexity of the accounting and recordkeeping requirements for these hedging activities, but overall it does not foresee a material ongoing impact on its financial position or results of operations from implementing the new rules. The FASB continues to deliberate potential changes to the new rules, the effects of which cannot be presently anticipated. TRANSFERS AND SERVICING OF FINANCIAL ASSETS. In September 2000, FASB issued Statement of Financial Accounting Standards No. 140, "Accounting for Transfers and Servicing of Financial Assets and Extinguishments of Liabilities, a replacement of FASB Statement No. 125" (SFAS 140). Provisions of SFAS 140 primarily relating to transfers of financial assets and securitizations that differ from provisions of SFAS 125 are effective for transfers taking place after March 31, 2001. SFAS 140 also provides revised guidance for an entity to be considered a qualifying special purpose entity (QSPE). It is not expected that there will be a material effect on the financial statements relating to a change in consolidation status for existing QSPEs under SFAS 140. INTEREST INCOME AND IMPAIRMENT ON CERTAIN ASSET-BACKED SECURITIES. In November 2000, the Emerging Issues Task Force (EITF) of the FASB finalized guidance on EITF Issue No. 99-20, "Recognition of Interest Income and Impairment on Purchased and Retained Beneficial Interests in Securitized Financial Assets." EITF 99-20, which is effective for the quarter beginning April 1, 2001, provides new guidance regarding income recognition and identification and determination of impairment on certain asset-backed securities. The Company is evaluating the potential impact of implementing the new accounting standard. 91
CITIGROUP INC. AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED) 2. SIGNIFICANT BUSINESS ACQUISITIONS ACQUISITION OF ASSOCIATES On November 30, 2000, Citigroup Inc., completed its acquisition of Associates First Capital Corporation (Associates). The acquisition was consummated through a merger of a subsidiary of Citigroup with and into Associates (with Associates as the surviving corporation) pursuant to which each share of Associates common stock became a right to receive .7334 of a share of Citigroup Inc. common stock (534.5 million shares). Subsequent to the acquisition, Associates was contributed to and became a wholly owned subsidiary of Citicorp and Citicorp issued a full and unconditional guarantee of the outstanding long-term debt securities and commercial paper of Associates and Associates Corporation of North America, a subsidiary of Associates (ACONA). Associates' and ACONA's debt securities and commercial paper will no longer be separately rated. The consolidated financial statements give retroactive effect to the acquisition in a transaction accounted for as a pooling of interests, with all periods presented as if Citigroup and Associates had always been combined. Certain reclassifications and adjustments have been recorded to conform the accounting policies and presentations of Citigroup and Associates. The following table sets forth the results of operations for the separate companies and the combined amounts for periods prior to the acquisition. <TABLE> <CAPTION> NINE MONTHS ENDED YEAR ENDED SEPTEMBER 30, DECEMBER 31, ------------- ------------------- In Millions of Dollars 2000 1999 1998 ------------- -------- -------- <S> <C> <C> <C> TOTAL REVENUES, NET OF INTEREST EXPENSE Citigroup..................................... $49,225 $57,237 $48,936 Associates.................................... 6,855 8,225 6,180 Reclassifications(1).......................... 140 302 182 Conforming adjustments(2)..................... (35) (42) (65) ------- ------- ------- CITIGROUP..................................... $56,185 $65,722 $55,233 ------- ------- ------- NET INCOME Citigroup..................................... $ 9,683 $ 9,867 $ 5,807 Associates.................................... 1,151 1,490 1,224 Conforming adjustments(2)..................... (155) (114) (81) ------- ------- ------- CITIGROUP..................................... $10,679 $11,243 $ 6,950 ======= ======= ======= </TABLE> - ------------------------ (1) Reclassifications have been made to conform the Company's post-merger presentation. (2) Conforming adjustments include the effects of conforming Associates' policies to the policies applied by Citigroup primarily for recognizing charge-offs on finance receivables, capitalizing insurance policy deferred acquisition costs, and recognizing revenue on leases and finance receivables and the related tax effects. 92
CITIGROUP INC. AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED) 2. SIGNIFICANT BUSINESS ACQUISITIONS (CONTINUED) MERGER WITH CITICORP On October 8, 1998, Citicorp merged with and into a newly formed, wholly owned subsidiary of Travelers Group, Inc. (TRV) (the Merger). Following the Merger, TRV changed its name to Citigroup Inc. (Citigroup). The Merger was accounted for under the pooling of interests method. CONVERSION OF CONVERTIBLE BONDS OF NIKKO SECURITIES CO., LTD. In March 2000, the Company converted into common stock a portion of its investment in convertible bonds of the Nikko Securities Co., Ltd. (Nikko), increasing its ownership of Nikko common stock from 9.5% to 20.7%. As a result of the conversion, the common stock investment in Nikko is accounted for under the equity method and is reported in other assets. The Company's proportionate share of Nikko's income is reflected in other income. The Consolidated Statements of Financial Condition and Changes in Stockholders' Equity have been restated to account for the original 9.5% ownership under the equity method from the date of original acquisition in August 1998. Previously, this 9.5% ownership was reported in available-for-sale securities with changes in fair value, net of applicable taxes, recorded in stockholders' equity. ACQUISITION OF TRAVELERS PROPERTY CASUALTY CORP. (TPC) MINORITY INTEREST During April 2000, The Travelers Insurance Group Inc. (TIGI), an indirect wholly owned subsidiary of the Company, completed a cash tender offer to purchase all of the outstanding shares of TPC not previously owned. ACQUISITION OF AVCO FINANCIAL SERVICES On January 6, 1999, Associates purchased the assets and assumed the liabilities of Avco Financial Services, Inc. (Avco) for $3.9 billion. Associates assumed from Avco approximately $7.5 billion in debt and, after giving effect to the sale of certain of the non-strategic operations, acquired $6.0 billion in finance receivables, $2.1 billion in goodwill and $690 million in other intangible assets. ACQUISITION OF UNIVERSAL CARD SERVICES On April 2, 1998, Citicorp completed its acquisition of Universal Card Services from AT&T for $3.5 billion in cash. This purchase added $15 billion in customer receivables and 13.5 million accounts. In addition, Citicorp entered into a ten-year cobranding and joint marketing agreement with AT&T. 3. BUSINESS SEGMENT INFORMATION Citigroup is a diversified holding company whose businesses provide a broad range of financial services to consumer and corporate customers around the world. The Company's activities are conducted through Global Consumer, Global Corporate and Investment Bank, Global Investment Management and Private Banking, Associates, and Investment Activities. The Global Consumer segment includes a global, full-service consumer franchise encompassing, among other things, branch and electronic banking, consumer lending services, investment services, credit and charge card services, and life, auto and homeowners insurance. The businesses included in the Company's Global Corporate and Investment Bank segment provide corporations, governments, institutions, and investors in 100 countries and territories with a broad range of financial products and 93
CITIGROUP INC. AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED) 3. BUSINESS SEGMENT INFORMATION (CONTINUED) services, including investment advice, financial planning and retail brokerage services, banking and financial services, and commercial insurance products. The Global Investment Management and Private Banking segment offers a broad range of asset management products and services from global investment centers around the world, including mutual funds, closed-end funds, managed accounts, unit investment trusts, variable annuities, pension administration, and personalized wealth management services to institutional, high net worth, and retail clients. Associates provides finance, leasing, insurance and related services to individual consumers and businesses in the United States and internationally. The Investment Activities segment includes the Company's venture capital activities, the realized investment gains and losses related to certain corporate- and insurance-related investments, and the results of certain investments in countries that refinanced debt under the 1989 Brady Plan or plans of a similar nature. Corporate/Other includes net corporate treasury results, corporate staff and other corporate expenses, certain intersegment eliminations, and the remainder of Internet-related development activities (e-Citi) not allocated to the individual businesses. The following table presents certain information regarding these industry segments: <TABLE> <CAPTION> TOTAL REVENUES, NET OF PROVISION FOR In Millions of Dollars, INTEREST EXPENSE(1) INCOME TAXES NET INCOME (LOSS)(2)(4) Except Identifiable Assets ------------------------------ ------------------------------ ------------------------------ in Billions 2000 1999(3) 1998(3) 2000 1999(3) 1998(3) 2000 1999(3) 1998(3) -------- -------- -------- -------- -------- -------- -------- -------- -------- <S> <C> <C> <C> <C> <C> <C> <C> <C> <C> Global Consumer............. $28,519 $26,140 $22,907 $2,960 $2,492 $1,657 $ 5,281 $ 4,291 $2,777 Global Corporate and Investment Bank........... 32,094 27,505 22,441 3,358 2,838 1,250 6,359 4,990 2,372 Global Investment Management and Private Banking....... 3,299 2,706 2,404 425 378 293 674 599 456 Associates.................. 9,728 8,489 6,297 553 827 673 850 1,380 1,143 Investment Activities....... 2,245 1,090 1,323 782 355 435 1,363 658 832 Corporate/Other............. (697) (208) (139) (553) (360) (401) (1,008) (675) (630) ------- ------- ------- ------ ------ ------ ------- ------- ------ TOTAL $75,188 $65,722 $55,233 $7,525 $6,530 $3,907 $13,519 $11,243 $6,950 ======= ======= ======= ====== ====== ====== ======= ======= ====== <CAPTION> IDENTIFIABLE ASSETS In Millions of Dollars, AT YEAR-END Except Identifiable Assets ------------------------------ in Billions 2000 1999(3) 1998(3) -------- -------- -------- <S> <C> <C> <C> Global Consumer............. $271 $235 $216 Global Corporate and Investment Bank........... 481 427 410 Global Investment Management and Private Banking....... 31 26 20 Associates.................. 97 84 76 Investment Activities....... 10 11 8 Corporate/Other............. 12 13 10 ---- ---- ---- TOTAL $902 $796 $740 ==== ==== ==== </TABLE> - ------------------------------ (1) Includes total revenues, net of interest expense in the United States of $53.3 billion, $47.5 billion, and $42.2 billion in 2000, 1999, and 1998, respectively. Total revenues, net of interest expense attributable to individual foreign countries are not material to the total. (2) For the 2000 period, Global Consumer, Global Corporate and Investment Bank, Global Investment Management and Private Banking, Associates, and Corporate/Other results reflect after-tax restructuring-related charges and merger-related costs of $13 million, $11 million, $11 million, $531 million, and $55 million, respectively. For the 1999 period, Global Consumer, Global Corporate and Investment Bank, Global Investment Management and Private Banking, Associates, and Corporate/ Other results reflect after-tax restructuring charges (credits) of $56 million, ($121) million, ($2) million, $22 million, and $20 million, respectively. For the 1998 period, Global Consumer, Global Corporate and Investment Bank, Global Investment Management and Private Banking, and Corporate/Other results reflect after-tax restructuring-related charges (credits) and merger-related costs of $401 million, ($26) million, $53 million, and $107 million, respectively. (3) Reclassified to conform to the 2000 presentation. (4) Includes provision for credit losses (benefits) in the Global Consumer results of $8.1 billion, $7.6 billion, and $7.0 billion, in the Global Corporate and Investment Bank results of $4.1 billion, $3.9 billion, and $4.2 billion, in the Global Investment Management and Private Banking results of $23 million, $12 million, and $5 million, in the Associates results of $3.3 billion, $2.4 billion, and $1.7 billion, and in the Corporate/Other results of ($2) million, $33 million, and ($1) million for 2000, 1999, 94
CITIGROUP INC. AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED) 3. BUSINESS SEGMENT INFORMATION (CONTINUED) and 1998, respectively. Includes provision for credit losses (benefits) in the Investment Activities results of $7 million and ($10) million in 2000 and 1998, respectively. 4. INVESTMENTS <TABLE> <CAPTION> In Millions of Dollars at Year-end 2000 1999 -------- -------- <S> <C> <C> Fixed maturities, primarily available for sale at fair value......................................... $ 99,484 $ 99,352 Equity securities, primarily at fair value........... 6,652 6,851 Venture capital, at fair value....................... 5,204 4,160 Short-term and other................................. 8,782 5,689 -------- -------- $120,122 $116,052 ======== ======== </TABLE> The amortized cost and fair value of investments in fixed maturities and equity securities at December 31, were as follows: <TABLE> <CAPTION> 2000 1999 ---------------------------------------------- ---------------------------------------------- GROSS GROSS GROSS GROSS In Millions of dollars at AMORTIZED UNREALIZED UNREALIZED FAIR AMORTIZED UNREALIZED UNREALIZED FAIR Year-End COST GAINS LOSSES VALUE COST GAINS LOSSES VALUE --------- ---------- ---------- -------- --------- ---------- ---------- -------- <S> <C> <C> <C> <C> <C> <C> <C> <C> FIXED MATURITY SECURITIES HELD TO MATURITY, PRINCIPALLY MORTGAGE-BACKED SECURITIES(1)................. $ 28 $ -- $ -- $ 28 $ 33 $ 3 $ -- $ 36 ------- ------ ------ ------- ------- ------ ------ ------- FIXED MATURITY SECURITIES AVAILABLE FOR SALE Mortgage-backed securities, principally obligations of U.S. Federal agencies......... $16,196 $ 329 $ 211 $16,314 $15,837 $ 55 $ 523 $15,369 U.S. Treasury and Federal agency........................ 5,680 171 15 5,836 7,400 36 130 7,306 State and municipal............. 15,314 730 141 15,903 14,400 258 527 14,131 Foreign government.............. 25,934 148 154 25,928 25,595 522 326 25,791 U.S. corporate.................. 25,143 589 547 25,185 25,120 200 719 24,601 Other debt securities(2)........ 9,633 763 106 10,290 9,263 3,016 158 12,121 ------- ------ ------ ------- ------- ------ ------ ------- $97,900 $2,730 $1,174 $99,456 $97,615 $4,087 $2,383 $99,319 ------- ------ ------ ------- ------- ------ ------ ------- TOTAL FIXED MATURITIES.......... $97,928 $2,730 $1,174 $99,484 $97,648 $4,090 $2,383 $99,355 ======= ====== ====== ======= ======= ====== ====== ======= EQUITY SECURITIES(3)............ $ 6,757 $ 340 $ 445 $ 6,652 $ 6,044 $1,117 $ 310 $ 6,851 ======= ====== ====== ======= ======= ====== ====== ======= </TABLE> - ------------------------------ (1) Recorded at amortized cost. (2) Investments in convertible debt of Nikko are included in other debt securities. (3) Includes non-marketable equity securities carried at cost, which are reported in both the amortized cost and fair value columns. 95
CITIGROUP INC. AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED) 4. INVESTMENTS (CONTINUED) The accompanying table shows components of interest and dividends on investments, realized gains and losses from sales of investments, and net gains on investments held by venture capital subsidiaries. <TABLE> <CAPTION> In Millions of Dollars 2000 1999 1998 -------- -------- -------- <S> <C> <C> <C> Taxable interest............................................ $ 6,743 $ 6,916 $6,021 Interest exempt from U.S. federal income tax................ 762 688 639 Dividends................................................... 393 306 193 ------- ------- ------ Gross realized investments gains(1)......................... $ 2,008 $ 1,273 $1,508 Gross realized investments losses(1)........................ 1,202 732 667 ------- ------- ------ Net realized and unrealized venture capital gains which included:................................................. $ 1,850 $ 816 $ 487 Gross unrealized gains.................................... 1,752 999 709 Gross unrealized losses................................... 618 587 412 </TABLE> - ------------------------ (1) Includes net realized gains related to insurance subsidiaries' sale of OREO and mortgage loans of $74 million, $215 million, and $67 million in 2000, 1999, and 1998, respectively. The following table presents the amortized cost, fair value, and average yield on amortized cost of fixed maturity securities by contractual maturity dates as of December 31, 2000: <TABLE> <CAPTION> AMORTIZED FAIR In Millions of Dollars COST VALUE YIELD --------- -------- -------- <S> <C> <C> <C> U.S. TREASURY AND FEDERAL AGENCY(1) Due within 1 year........................................... $ 2,227 $ 2,225 6.47% After 1 but within 5 years.................................. 1,030 1,050 6.02 After 5 but within 10 years................................. 1,557 1,606 6.62 After 10 years(2)........................................... 12,043 12,301 6.91 ------- ------- ------ TOTAL....................................................... $16,857 $17,182 6.77 ======= ======= ====== STATE AND MUNICIPAL Due within 1 year........................................... $ 113 $ 112 6.19% After 1 but within 5 years.................................. 1,001 1,020 5.79 After 5 but within 10 years................................. 2,722 2,765 5.40 After 10 years(2)........................................... 11,478 12,006 5.70 ------- ------- ------ TOTAL....................................................... $15,314 $15,903 5.65 ======= ======= ====== ALL OTHER(3) Due within 1 year........................................... $13,283 $13,360 7.91% After 1 but within 5 years.................................. 24,519 24,989 6.57 After 5 but within 10 years................................. 15,363 15,422 9.25 After 10 years(2)........................................... 12,592 12,628 7.72 ------- ------- ------ TOTAL....................................................... $65,757 $66,399 7.69 ======= ======= ====== </TABLE> - -------------------------- (1) Includes mortgage-backed securities of U.S. federal agencies. (2) Investments with no stated maturities are included as contractual maturities of greater than 10 years. Actual maturities may differ due to call or prepayment rights. (3) Includes foreign government, U.S. corporate, mortgage-backed securities issued by U.S. corporations, and other debt securities. Yields reflect the impact of local interest rates prevailing in countries outside the U.S. 96
CITIGROUP INC. AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED) 5. FEDERAL FUNDS, SECURITIES BORROWED, LOANED, AND SUBJECT TO REPURCHASE AGREEMENTS Federal funds sold and securities borrowed or purchased under agreements to resell, at their respective carrying values, consisted of the following at December 31: <TABLE> <CAPTION> In Millions of Dollars 2000 1999 -------- -------- <S> <C> <C> Federal funds sold and resale agreements.................... $ 69,087 $ 76,676 Deposits paid for securities borrowed....................... 36,790 35,979 -------- -------- $105,877 $112,655 ======== ======== </TABLE> Federal funds purchased and securities loaned or sold under agreements to repurchase, at their respective carrying values, consisted of the following at December 31: <TABLE> <CAPTION> In Millions of Dollars 2000 1999 -------- -------- <S> <C> <C> Federal funds purchased and repurchase agreements........... $ 94,397 $81,375 Deposits received for securities loaned..................... 16,228 11,216 -------- ------- $110,625 $92,591 ======== ======= </TABLE> The resale and repurchase agreements represent collateralized financing transactions used to generate net interest income and facilitate trading activity. These instruments are collateralized principally by government and government agency securities and generally have terms ranging from overnight to up to a year. It is the Company's policy to take possession of the underlying collateral, monitor its market value relative to the amounts due under the agreements, and, when necessary, require prompt transfer of additional collateral or reduction in the loan balance in order to maintain contractual margin protection. In the event of counterparty default, the financing agreement provides the Company with the right to liquidate the collateral held. Resale agreements and repurchase agreements are reported net by counterparty, when applicable, pursuant to FASB Interpretation 41, "Offsetting of Amounts Related to Certain Repurchase and Reverse Repurchase Agreements" (FIN 41). Excluding the impact of FIN 41, resale agreements totaled $118.9 billion and $122.4 billion at December 31, 2000 and 1999, respectively. Deposits paid for securities borrowed (securities borrowed) and deposits received for securities loaned (securities loaned) are recorded at the amount of cash advanced or received and are collateralized principally by government and government agency securities, corporate debt and equity securities. Securities borrowed transactions require the Company to deposit cash with the lender. With respect to securities loaned, the Company receives cash collateral in an amount generally in excess of the market value of securities loaned. The Company monitors the market value of securities borrowed and securities loaned daily, and additional collateral is obtained as necessary. Securities borrowed and securities loaned are reported net by counterparty, when applicable, pursuant to FAS Interpretation 39, "Offsetting of Amounts Related to Certain Contracts" (FIN 39). 6. BROKERAGE RECEIVABLES AND BROKERAGE PAYABLES The Company has receivables and payables for financial instruments purchased from and sold to brokers and dealers and customers. The Company is exposed to risk of loss from the inability of 97
CITIGROUP INC. AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED) 6. BROKERAGE RECEIVABLES AND BROKERAGE PAYABLES (CONTINUED) brokers and dealers or customers to pay for purchases or to deliver the financial instrument sold, in which case the Company would have to sell or purchase the financial instruments at prevailing market prices. Credit risk is reduced to the extent that an exchange or clearing organization acts as a counterparty to the transaction. The Company seeks to protect itself from the risks associated with customer activities by requiring customers to maintain margin collateral in compliance with regulatory and internal guidelines. Margin levels are monitored daily, and customers deposit additional collateral as required. Where customers cannot meet collateral requirements, the Company will liquidate sufficient underlying financial instruments to bring the customer into compliance with the required margin level. Exposure to credit risk is impacted by market volatility, which may impair the ability of clients to satisfy their obligations to the Company. Credit limits are established and closely monitored for customers and brokers and dealers engaged in forward and futures and other transactions deemed to be credit sensitive. Brokerage receivables and brokerage payables, which arise in the normal course of business, consisted of the following at December 31: <TABLE> <CAPTION> In Millions of Dollars 2000 1999 -------- -------- <S> <C> <C> Receivables from customers.................................. $23,142 $20,451 Receivables from brokers, dealers, and clearing organizations............................................. 2,554 1,768 ------- ------- TOTAL BROKERAGE RECEIVABLES................................. $25,696 $22,219 ======= ======= Payables to customers....................................... $13,564 $12,323 Payables to brokers, dealers, and clearing organizations.... 2,318 1,115 ------- ------- TOTAL BROKERAGE PAYABLES.................................... $15,882 $13,438 ======= ======= </TABLE> 98
CITIGROUP INC. AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED) 7. TRADING ACCOUNT ASSETS AND LIABILITIES Trading account assets and liabilities, at market value, consisted of the following at December 31: <TABLE> <CAPTION> In Millions of Dollars 2000 1999 -------- -------- <S> <C> <C> TRADING ACCOUNT ASSETS U.S. Treasury and Federal agency securities................. $ 30,939 $ 24,847 State and municipal securities.............................. 2,439 2,121 Foreign government securities............................... 13,308 9,126 Corporate and other debt securities......................... 17,046 13,798 Derivative and other contractual commitments(1)............. 35,177 31,646 Equity securities........................................... 17,174 11,885 Mortgage loans and collateralized mortgage securities....... 6,024 5,654 Other....................................................... 10,406 7,984 -------- -------- $132,513 $107,061 ======== ======== TRADING ACCOUNT LIABILITIES Securities sold, not yet purchased.......................... $ 48,489 $ 51,447 Derivative and other contractual commitments(1)............. 36,618 39,053 -------- -------- $ 85,107 $ 90,500 ======== ======== </TABLE> - ------------------------ (1) Net of master netting agreements and securitization. The average fair value of derivative and other contractual commitments in trading account assets during 2000 and 1999 was $35.1 billion and $36.8 billion, respectively. The average fair value of derivative and other contractual commitments in trading account liabilities during 2000 and 1999 was $37.2 billion and $38.9 billion, respectively. See Note 23 for a discussion of trading securities, commodities, derivatives and related risks. 8. TRADING RELATED REVENUE Trading related revenue consists of principal transactions revenues and net interest revenue associated with trading activities. Principal transactions revenues consist of realized and unrealized 99
CITIGROUP INC. AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED) 8. TRADING RELATED REVENUE (CONTINUED) gains and losses from trading activities. The following table presents trading related revenue for the years ended December 31: <TABLE> <CAPTION> In Millions of Dollars 2000 1999 1998 -------- -------- -------- <S> <C> <C> <C> GLOBAL CORPORATE AND INVESTMENT BANK Fixed income(1)............................................. $2,369 $2,310 $1,158 Equities(2)................................................. 1,729 1,291 853 Foreign exchange(3)......................................... 1,243 1,405 1,404 All other(4)................................................ 301 482 (924) ------ ------ ------ Total Global Corporate and Investment Bank.................. 5,642 5,488 2,491 GLOBAL CONSUMER AND OTHER................................... 706 597 366 ------ ------ ------ TOTAL TRADING RELATED REVENUE............................... $6,348 $6,085 $2,857 ====== ====== ====== </TABLE> - ------------------------ (1) Includes revenues from government securities and corporate debt, municipal securities, preferred stock, mortgage securities, and other debt instruments. Also includes spot and forward trading of currencies and exchange-traded and over-the-counter (OTC) currency options, options on fixed income securities, interest rate swaps, currency swaps, swap options, caps and floors, financial futures, OTC options and forward contracts on fixed income securities. (2) Includes revenues from common and convertible preferred stock, convertible corporate debt, equity-linked notes, and exchange-traded and OTC equity options and warrants. (3) Includes revenues from foreign exchange spot, forward, option and swap contracts. (4) Primarily includes revenues related to fixed income and equity securities, together with related derivatives, utilized in arbitrage strategies, as well as revenues from the results of Phibro Inc. (Phibro), which trades crude oil, refined oil products, natural gas, electricity, metals, and other commodities. The following table reconciles principal transactions revenues on the Consolidated Statement of Income to trading related revenue for the years ended December 31: <TABLE> <CAPTION> In Millions of Dollars 2000 1999 1998 -------- -------- -------- <S> <C> <C> <C> Principal transactions...................................... $5,981 $5,160 $1,780 Net interest revenue........................................ 367 925 1,077 ------ ------ ------ TOTAL TRADING RELATED REVENUE............................... $6,348 $6,085 $2,857 ====== ====== ====== </TABLE> 100
CITIGROUP INC. AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED) 9. LOANS <TABLE> <CAPTION> In Millions of Dollars at Year-end 2000 1999 -------- -------- <S> <C> <C> CONSUMER In U.S. offices Mortgage and real estate(1)(2)............................ $ 73,166 $ 59,376 Installment, revolving credit, and other.................. 78,017 63,374 -------- -------- 151,183 122,750 -------- -------- In offices outside the U.S. Mortgage and real estate(1)(3)............................ 24,988 24,808 Installment, revolving credit, and other.................. 55,515 50,293 Lease financing........................................... 427 475 -------- -------- 80,930 75,576 -------- -------- 232,113 198,326 Unearned income............................................. (3,234) (3,757) -------- -------- CONSUMER LOANS, NET OF UNEARNED INCOME...................... $228,879 $194,569 ======== ======== COMMERCIAL In U.S. offices Commercial and industrial(4).............................. $ 37,220 $ 30,163 Lease financing........................................... 14,864 10,281 Mortgage and real estate(1)............................... 3,490 5,439 -------- -------- 55,574 45,883 -------- -------- In offices outside the U.S. Commercial and industrial(4).............................. 69,111 61,984 Mortgage and real estate(1)............................... 1,720 1,728 Loans to financial institutions........................... 9,559 7,692 Lease financing........................................... 3,689 2,459 Governments and official institutions..................... 1,952 3,250 -------- -------- 86,031 77,113 -------- -------- 141,605 122,996 Unearned income............................................. (3,462) (2,664) -------- -------- COMMERCIAL LOANS, NET OF UNEARNED INCOME.................... $138,143 $120,332 ======== ======== </TABLE> - ------------------------ (1) Loans secured primarily by real estate. (2) Includes $3.7 billion in 2000 and $3.4 billion in 1999 of commercial real estate loans related to community banking and private banking activities. (3) Includes $2.7 billion in 2000 and $2.9 billion in 1999 of loans secured by commercial real estate. (4) Includes loans not otherwise separately categorized. 101
CITIGROUP INC. AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED) 9. LOANS (CONTINUED) Impaired loans are those on which Citigroup believes it is not probable that it will be able to collect all amounts due according to the contractual terms of the loan, excluding smaller-balance homogeneous loans that are evaluated collectively for impairment, and are carried on a cash basis. Valuation allowances for these loans are estimated considering all available evidence including, as appropriate, the present value of the expected cash flows discounted at the loan's contractual effective rate, the secondary market value of the loan, the fair value of collateral, and environmental factors. The following table presents information about impaired loans. <TABLE> <CAPTION> In Millions of Dollars at Year-end 2000 1999 -------- -------- <S> <C> <C> Impaired commercial loans................................... $1,847 $1,551 Other impaired loans(1)..................................... 100 185 ------ ------ Total impaired loans(2)..................................... $1,947 $1,736 ====== ====== Impaired loans with valuation allowances.................... $1,583 $1,381 Total valuation allowances(3)............................... 480 411 ====== ====== During the year(4): Average balance of impaired loans......................... $1,858 $1,898 Interest income recognized on impaired loans.............. 97 85 ====== ====== </TABLE> - ------------------------ (1) Primarily commercial real estate loans related to community and private banking activities. (2) At year-end 2000, approximately 25% of these loans were measured for impairment using the fair value of the collateral, with the remaining 75% measured using the present value of the expected future cash flows, discounted at the loan's effective interest rate, compared with approximately 33% and 67%, respectively, at year-end 1999. (3) Included in the allowance for credit losses. (4) For the year ended December 31, 1998, the average balance of impaired loans was $1.7 billion and interest income recognized on impaired loans was $75 million. 102
CITIGROUP INC. AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED) 9. LOANS (CONTINUED) The following table presents total loan portfolios managed, the portion of those portfolios securitized, and delinquencies (loans which are 90 days or more past due) at December 31, 2000, and credit losses, net of recoveries, for the year ended December 31, 2000. <TABLE> <CAPTION> CREDIT CARD MORTGAGE MANAGED LOANS RECEIVABLES LOANS(1) - ------------- ----------- -------- <S> <C> <C> In Billions of Dollars Principal amounts, at year-end Total managed............................................... $105.8 $28.1 Securitized amounts......................................... (57.0) (2.1) ------ ----- ON-BALANCE SHEET............................................ $ 48.8 $26.0 ====== ===== In Millions of Dollars Delinquencies, at year-end Total managed............................................... $1,719 $ 759 Securitized amounts......................................... (925) (81) ------ ----- ON-BALANCE SHEET............................................ $ 794 $ 678 ====== ===== Credit losses, net of recoveries, for the year ended December 31, Total managed............................................... $4,148 $ 422 Securitized amounts......................................... (2,250) (12) ------ ----- ON-BALANCE SHEET............................................ $1,898 $ 410 ====== ===== </TABLE> - ------------------------ (1) Includes mortgage and home equity loans. 103
CITIGROUP INC. AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED) 10. ALLOWANCE FOR CREDIT LOSSES <TABLE> <CAPTION> In Millions of Dollars 2000 1999 1998 -------- -------- -------- <S> <C> <C> <C> ALLOWANCE FOR CREDIT LOSSES AT BEGINNING OF YEAR............ $8,853 $8,596 $8,087 Additions Consumer provision for credit losses...................... 4,345 4,169 3,753 Commercial provision for credit losses.................... 994 591 508 ------ ------ ------ TOTAL PROVISION FOR CREDIT LOSSES........................... 5,339 4,760 4,261 ------ ------ ------ Deductions Consumer credit losses.................................... 5,352 4,862 4,292 Consumer credit recoveries................................ (929) (769) (714) ------ ------ ------ NET CONSUMER CREDIT LOSSES.................................. 4,423 4,093 3,578 ------ ------ ------ Commercial credit losses.................................. 906 746 671 Commercial credit recoveries.............................. (135) (156) (191) ------ ------ ------ NET COMMERCIAL CREDIT LOSSES................................ 771 590 480 ------ ------ ------ Other--net(1)............................................... (37) 180 306 ------ ------ ------ ALLOWANCE FOR CREDIT LOSSES AT END OF YEAR.................. $8,961 $8,853 $8,596 ====== ====== ====== </TABLE> - ------------------------ (1) In 2000 and 1999, primarily includes the addition of allowance for credit losses related to acquisitions and foreign currency translation effects. In 1998, also reflects the addition of $320 million of credit loss reserves related to the acquisition of the Universal Card portfolio. 11. SECURITIZATION ACTIVITY Citigroup and its subsidiaries securitize primarily credit card receivables, mortgage and home equity loans. After securitization of credit card receivables, the Company continues to maintain credit card customer account relationships and provides servicing for receivables transferred to the trust. The Company also provides credit enhancement to the trust using cash collateral accounts and put options. As specified in certain of the sale agreements, the net revenue collected each month is accumulated up to a predetermined maximum amount, and is available over the remaining term of that transaction to make payments of yield, fees, and transaction costs in the event that net cash flows from the receivables are not sufficient. When the predetermined amount is reached net revenue is passed directly to the Citigroup subsidiary that sold the receivables. The Company provides a wide range of mortgage and home equity products to a diverse customer base. In connection with these loans, the servicing rights entitle the Company to a future stream of cash flows based on the outstanding principal balances of the loans and the contractual servicing fee. Failure to service the loans in accordance with contractual requirements may lead to a termination of the servicing rights and the loss of future servicing fees. In non-recourse servicing, the principal credit risk to the servicer is the cost of temporary advances of funds. In recourse servicing, the servicer agrees to share credit risk with the owner of the mortgage loans such as FNMA or FHLMC or with a private investor, insurer or guarantor. Losses on recourse servicing occur primarily when foreclosure sale 104
CITIGROUP INC. AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED) 11. SECURITIZATION ACTIVITY (CONTINUED) proceeds of the property underlying a defaulted mortgage or home equity loan are less than the outstanding principal balance and accrued interest of such mortgage loan and the cost of holding and disposing of the underlying property. The following table summarizes certain cash flows received from and paid to securitization trusts during the year ended December 31, 2000: <TABLE> <CAPTION> In Billions of Dollars CREDIT CARDS MORTGAGES(1) ------------ ------------ <S> <C> <C> Proceeds from new securitizations........................... $ 9.1 $16.5 Proceeds from collections reinvested in new receivables..... 127.2 0.2 Servicing fees received..................................... 1.0 0.3 Cash flows received on retained interests................... 0.3 0.3 ===== ===== </TABLE> - ------------------------ (1) Includes mortgage, home equity and manufactured housing loans. Key assumptions used for mortgage and home equity loans during the year ended December 31, 2000 in measuring the fair value of retained interests at the date of sale or securitization, presented by product groups, follow: <TABLE> <S> <C> Discount rate............................................... 11.50% TO 12.90%; 12.25% Constant payment rate....................................... 7.4% TO 7.6%; 28.0% Anticipated net credit losses............................... 0.04%; 7.64% ======================== </TABLE> For the year ended December 31, 2000, the Company recognized $79 million of gains on securitizations of mortgage and home equity loans. As disclosed below, SFAS 140 requires that the effect on the fair value of the retained interests of two adverse changes in each key assumption be independently calculated. Because the key assumptions may be correlated, the net effect of simultaneous adverse changes in the key assumptions may be less than the sum of the individual effects disclosed below. 105
CITIGROUP INC. AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED) 11. SECURITIZATION ACTIVITY (CONTINUED) At December 31, 2000, for mortgage, home equity and manufactured housing loans, the key assumptions, presented by product groups, and the sensitivity of the fair value of retained interests to two adverse changes in each of the key assumptions were as follows: <TABLE> <S> <C> In Millions of Dollars Carrying value of retained interests......... $ 2,483 ---------------------------------- Discount rate................................ 9.70% TO 10.96%; 15.00% +10%....................................... $ (91.3) +20%....................................... (176.3) ---------------------------------- Constant payment rate........................ 11.1% TO 12.0%; 28.0% +10%....................................... $(106.0) +20%....................................... (196.0) ---------------------------------- Anticipated net credit losses................ 0.07%; 3.20% TO 11.99% +10%....................................... $ (37.2) +20%....................................... (74.2) </TABLE> 12. DEBT INVESTMENT BANKING AND BROKERAGE BORROWINGS Investment banking and brokerage borrowings and the corresponding weighted average interest rates at December 31 are as follows: <TABLE> <CAPTION> 2000 1999 ------------------- ------------------- WEIGHTED WEIGHTED AVERAGE AVERAGE INTEREST INTEREST In Millions of Dollars BALANCE RATE BALANCE RATE -------- -------- -------- -------- <S> <C> <C> <C> <C> Commercial paper........................................ $16,705 6.6% $12,578 6.0% Bank borrowings......................................... 429 5.7% 536 5.8% Other................................................... 1,093 6.0% 605 6.4% ------- ------- $18,227 $13,719 ======= ======= </TABLE> Investment banking and brokerage borrowings are short-term in nature and include commercial paper, bank borrowings and other borrowings used to finance SSB's operations, including the securities settlement process. Outstanding bank borrowings include both U.S. dollar and non-U.S. dollar denominated loans. The non-U.S. dollar loans are denominated in multiple currencies including the Japanese yen, British pound, and Euro. All commercial paper outstanding at December 31, 2000 and 1999 was U.S. dollar denominated. At December 31, 2000, Salomon Smith Barney Holdings Inc. (Salomon Smith Barney), had a $5.0 billion, 364-day revolving credit agreement that extends through May 2001. Salomon Smith Barney may borrow under its revolving credit facilities at various interest rate options (LIBOR, CD, or base rate) and compensates the banks for the facilities through commitment fees. Under these facilities SSB is required to maintain a certain level of consolidated adjusted net worth (as defined in the 106
CITIGROUP INC. AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED) 12. DEBT (CONTINUED) agreements). At December 31, 2000, this requirement was exceeded by approximately $4.3 billion. At December 31, 2000 there were no borrowings outstanding under this facility. Salomon Smith Barney also has substantial borrowing arrangements consisting of facilities that it has been advised are available, but where no contractual lending obligation exists. SHORT-TERM BORROWINGS At December 31, short-term borrowings consisted of commercial paper and other borrowings with weighted average interest rates as follows: <TABLE> <CAPTION> 2000 1999 ------------------- ------------------- WEIGHTED WEIGHTED In Millions of Dollars BALANCE AVERAGE BALANCE AVERAGE -------- -------- -------- -------- <S> <C> <C> <C> <C> COMMERCIAL PAPER Citigroup............................................... $ 496 6.61% $ -- --% Citicorp and Subsidiaries............................... 37,656 5.34 31,018 5.69 ------- ------- ------- ---- 38,152 31,018 OTHER BORROWINGS........................................ 13,523 8.76 13,321 7.94 ------- ------- $51,675 $44,339 ------- ------- </TABLE> Citigroup, Citicorp, Associates and certain of its affiliated companies, TPC and The Travelers Insurance Company (TIC) issue commercial paper directly to investors. Citigroup and Citicorp, both of which are bank holding companies, maintain combined liquidity reserves of cash, securities, and unused bank lines of credit at least equal to their combined outstanding commercial paper. All of the commercial paper issued by Associates and its affiliates is guaranteed by Citicorp, and Associates maintains unutilized credit facilities, all guaranteed by Citicorp, in support of approximately 75% of its commercial paper. TPC and TIC each maintains unused credit availability under their respective bank lines of credit at least equal to the amount of outstanding commercial paper. Borrowings under bank lines of credit may be at interest rates based on LIBOR, CD rates, the prime rate or bids submitted by the banks. Each company pays its banks commitment fees for its lines of credit. Citicorp, Salomon Smith Barney, and some of their nonbank subsidiaries have credit facilities with Citicorp's subsidiary banks, including Citibank, N.A. Borrowings under these facilities must be secured in accordance with Section 23A of the Federal Reserve Act. Citigroup and TIC have an agreement with a syndicate of banks to provide $1.0 billion of revolving credit, to be allocated to Citigroup and TIC. The participation of TIC in this agreement is limited to $250 million. The revolving credit facility consists of a five-year revolving credit facility that expires in June 2001. At December 31, 2000, all of the facility was allocated to Citigroup. Under this facility the Company is required to maintain a certain level of consolidated stockholders' equity (as defined in the agreement). The Company exceeded this requirement by approximately $44 billion at December 31, 2000. At December 31, 2000, there were no borrowings outstanding under this facility. 107
CITIGROUP INC. AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED) 12. DEBT (CONTINUED) Associates maintains a combination of unutilized bilateral and syndicated credit facilities to support its short-term borrowings. These facilities, which have maturities ranging from 2001 through 2005, provide a means of managing liquidity and ensure that funds are always available to satisfy maturing short-term obligations. At December 31, 2000, these facilities provided coverage of approximately 75% of Associates' commercial paper borrowings and utilized uncommitted lines of credit. In connection with Citigroup's November 30, 2000 acquisition of Associates in which Associates became a wholly owned subsidiary of Citicorp, Citicorp guaranteed various debt obligations of Associates, including those arising under these facilities. Under these facilities, Citicorp is required to maintain a certain level of consolidated stockholder's equity. At December 31, 2000, this requirement was exceeded by $32.6 billion. At December 31, 2000, CitiFinancial Credit Company (CCC), an indirect subsidiary of Citicorp had committed and available revolving credit facilities of $3.4 billion, consisting of five-year facilities which expire in 2002. At December 31, 2000, there were no borrowings outstanding under these facilities. Citicorp guaranteed various debt obligations of CCC, including those arising under these facilities. Under this facility Citicorp is required to maintain a certain level of consolidated stockholder's equity (as defined in the agreement). At December 31, 2000, this requirement was exceeded by approximately $32.6 billion. TPC has a five-year revolving credit facility in the amount of $250 million with a syndicate of banks that expires in December 2001. Under this facility TPC is required to maintain a certain level of consolidated stockholders' equity (as defined in the agreement). At December 31, 2000, this requirement was exceeded by approximately $5.6 billion. At December 31, 2000, there were no borrowings outstanding under this facility. 108
CITIGROUP INC. AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED) 12. DEBT (CONTINUED) LONG-TERM DEBT At December 31, long-term debt was as follows: <TABLE> <CAPTION> WEIGHTED AVERAGE In Millions of Dollars COUPON MATURITIES 2000 1999 -------- ---------- -------- -------- <S> <C> <C> <C> <C> CITIGROUP INC. Senior Notes(1)..................................... 5.80% 2001-2030 $ 13,947 $ 4,181 Subordinated Notes.................................. 7.25% 2010 4,250 -- CITICORP AND SUBSIDIARIES Senior Notes........................................ 6.57% 2001-2037 65,313 57,672 Subordinated Notes.................................. 7.01% 2001-2035 7,747 7,785 SALOMON SMITH BARNEY HOLDINGS INC. Senior Notes........................................ 6.30% 2001-2026 19,652 17,970 TRAVELERS PROPERTY CASUALTY CORP. Senior Notes........................................ 6.99% 2001-2026 850 850 THE TRAVELERS INSURANCE GROUP INC.(2)............... 19 23 -------- ------- Senior Notes........................................ 99,762 80,673 Subordinated Notes.................................. 11,997 7,785 Other............................................... 19 23 -------- ------- TOTAL............................................... $111,778 $88,481 ======== ======= </TABLE> - ------------------------ (1) Also includes $250 million of notes maturing in 2098. (2) Principally 12% GNMA/FNMA-collateralized obligations. The Company issues both U.S. dollar and non-U.S. dollar denominated fixed and variable rate debt. The Company utilizes derivative contracts, primarily interest rate swaps, to effectively convert a portion of its fixed rate debt to variable rate debt. The maturity structure of the derivatives generally corresponds with the maturity structure of the debt being hedged. At December 31, 2000, the Company entered into interest rate swaps to convert $23.0 billion of its $62.5 billion of fixed rate debt to variable rate obligations. At December 31, 2000, the Company's overall weighted average interest rate for long-term debt was 6.49% on a contractual basis and 6.48% including the effects of derivative contracts. In addition, the Company utilizes other derivative contracts to manage the foreign exchange impact of certain debt issuances. 109
CITIGROUP INC. AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED) 12. DEBT (CONTINUED) Aggregate annual maturities on long-term debt obligations (based on final maturity dates) are as follows: <TABLE> <CAPTION> In Millions of Dollars 2001 2002 2003 2004 2005 THEREAFTER -------- -------- -------- -------- -------- ---------- <S> <C> <C> <C> <C> <C> <C> Citigroup Inc.................................. $ 3,000 $ 3,304 $ -- $ 750 $ -- $11,143 Salomon Smith Barney Holdings Inc.............. 2,826 4,947 5,860 2,005 1,834 2,180 Citicorp and Subsidiaries...................... 17,958 18,625 11,319 6,325 5,916 12,917 Travelers Property Casualty Corp............... 500 -- -- -- -- 350 The Travelers Insurance Group.................. -- -- -- -- -- 19 ------- ------- ------- ------ ------ ------- $24,284 $26,876 $17,179 $9,080 $7,750 $26,609 ======= ======= ======= ====== ====== ======= </TABLE> 13. INSURANCE POLICY AND CLAIMS RESERVES At December 31, insurance policy and claims reserves consisted of the following: <TABLE> <CAPTION> In Millions of Dollars 2000 1999 -------- -------- <S> <C> <C> Benefit and loss reserves: Property-casualty(1)...................................... $28,327 $28,776 Life and annuity.......................................... 9,966 9,370 Accident and health....................................... 1,074 914 Unearned premiums........................................... 4,836 4,338 Policy and contract claims.................................. 463 444 ------- ------- $44,666 $43,842 ======= ======= </TABLE> - ------------------------ (1) Included at December 31, 2000 and 1999 are $1.4 billion and $1.5 billion, respectively, of reserves related to workers' compensation that have been discounted using an interest rate of 5%. 110
CITIGROUP INC. AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED) 13. INSURANCE POLICY AND CLAIMS RESERVES (CONTINUED) The following table is a reconciliation of beginning and ending property-casualty reserve balances for claims and claim adjustment expenses for the years ended December 31: <TABLE> <CAPTION> In Millions of Dollars 2000 1999 1998 -------- -------- -------- <S> <C> <C> <C> CLAIMS AND CLAIM ADJUSTMENT EXPENSE RESERVES AT BEGINNING OF YEAR...................................................... $28,776 $29,139 $29,367 Less reinsurance recoverables on unpaid losses.............. 8,409 7,987 7,941 ------- ------- ------- Net balance at beginning of year............................ 20,367 21,152 21,426 ------- ------- ------- Provision for claims and claim adjustment expenses for claims arising in current year............................ 7,015 6,564 6,127 Estimated claims and claim adjustment expenses for claims arising in prior years.................................... (204) (281) (331) ------- ------- ------- TOTAL INCREASES............................................. 6,811 6,283 5,796 ------- ------- ------- Acquisitions................................................ -- -- 368 ------- ------- ------- Claims and claim adjustment expense payments for claims arising in: Current year.............................................. 2,975 2,757 2,405 Prior years............................................... 4,281 4,311 4,033 ------- ------- ------- TOTAL PAYMENTS.............................................. 7,256 7,068 6,438 ------- ------- ------- Net balance at end of year.................................. 19,922 20,367 21,152 Plus reinsurance recoverables on unpaid losses.............. 8,405 8,409 7,987 ------- ------- ------- CLAIMS AND CLAIM ADJUSTMENT EXPENSE RESERVES AT END OF YEAR...................................................... $28,327 $28,776 $29,139 ======= ======= ======= </TABLE> The decreases in the claims and claim adjustment expense reserves in 2000 and 1999, from 1999 and 1998, respectively, were primarily attributable to net payments of $341 million and $504 million, respectively, for environmental and cumulative injury claims. In 2000, estimated claims and claim adjustment expenses for claims arising in prior years included approximately $76 million primarily relating to net favorable development in certain Commercial Lines coverages, predominantly in the commercial multi-peril line of business, and in certain Personal Lines coverages, predominately personal umbrella coverages. In addition, in 2000 Commercial Lines experienced favorable loss development on loss sensitive policies in various lines; however, since the business to which it relates is subject to premium adjustments, there is no impact on results of operations. In 1999, estimated claims and claim adjustment expenses for claims arising in prior years included approximately $205 million primarily relating to net favorable development in certain Personal Lines coverages, predominantly automobile coverages, and in certain Commercial Lines coverages, predominantly in the general liability and commercial multi-peril lines of business. In addition, in 1999 Commercial Lines experienced favorable loss development on loss sensitive policies in the workers' compensation line; however, since the business to which it relates is subject to premium adjustments, there was no impact on results of operations. In 1998, estimated claims and claim adjustment expenses for claims arising in prior years included approximately $176 million primarily relating to net favorable developments in certain Personal Lines 111
CITIGROUP INC. AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED) 13. INSURANCE POLICY AND CLAIMS RESERVES (CONTINUED) coverages, predominantly automobile coverages. In addition, in 1998 Commercial Lines experienced favorable prior-year loss development on loss sensitive policies in the workers' compensation line; however, since the business to which it relates is subject to premium adjustments, there was no impact on results of operations. The property-casualty claims and claim adjustment expense reserves include $1.364 billion and $1.503 billion for asbestos and environmental-related claims net of reinsurance at December 31, 2000 and 1999, respectively. It is difficult to estimate the reserves for environmental and asbestos-related claims due to the vagaries of court coverage decisions, plaintiffs' expanded theories of liability, the risks inherent in major litigation and other uncertainties, including without limitation, those which are set forth below. Conventional actuarial techniques are not used to estimate such reserves. For environmental claims, the Company estimates its financial exposure and establishes reserves based upon an analysis of its historical claim experience and the facts of the individual underlying environmental exposure of each policyholder. The unique facts are evaluated individually and collectively. Due consideration is given to the many variables presented by each policyholder. The reserving methodology for asbestos includes an evaluation of the asbestos exposure presented by each insured. The following factors are evaluated: available insurance coverage including the role of any umbrella or excess insurance issued by the Company to the insured; limits and deductibles; an analysis of each insured's potential liability; jurisdictional involvement; past and anticipated future claim activity; past settlement values of similar claims; allocated claim adjustment expense; potential role of other insurance; the role, if any, of non-asbestos claims or potential non-asbestos claims in any resolution process; and applicable coverage defenses or determinations, if any, including the determination as to whether an asbestos claim is a products/completed operations or non-products/ operating claim and the available coverage, if any, for such a claim. Once the gross ultimate exposure for indemnity and allocated claim adjustment expense is determined for each insured by each policy year, a ceded reinsurance projection is calculated based on any applicable facultative and treaty reinsurance, as well as past ceded experience. Adjustments to the ceded projections also occur due to actual ceded claim experience and reinsurance collections. Historically, the Company's experience has indicated that insureds with potentially significant environmental and asbestos exposures may often have potential cumulative injury other than asbestos (CIOTA) exposures or CIOTA claims pending with the Company. Due to this experience and the fact that settlement agreements with insureds may extinguish the Company's obligations for all claims, including environmental, asbestos and CIOTA, the Company evaluates and considers the environmental and asbestos reserves in conjunction with the CIOTA reserve. The Company also compares its historical direct and net loss and expense paid experience in environmental and asbestos, year-by-year, to assess any emerging trends, fluctuations or characteristics suggested by the aggregate paid activity. The comparison includes a review of the result derived from the division of the ending direct and net reserves by last year's direct and net paid activity, also known as the survival ratio. As a result of these processes and procedures, the reserves carried for environmental and asbestos claims at December 31, 2000 are the Company's best estimate of ultimate claims and claim adjustment expenses based upon known facts and current law. However, the uncertainties surrounding the final 112
CITIGROUP INC. AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED) 13. INSURANCE POLICY AND CLAIMS RESERVES (CONTINUED) resolution of these claims continue. These include, without limitation, any impact from the bankruptcy protection sought by various asbestos producers, a further increase or decrease in asbestos and environmental claims which cannot now be anticipated as well as the role of any umbrella or excess policies issued by the Company for such claims, the resolution or adjudication of certain disputes pertaining to asbestos non-products/operations claims in a manner inconsistent with the Company's previous assessment of such claims as well as unanticipated developments pertaining to the Company's ability to recover reinsurance for environmental and asbestos claims. It is also not possible to predict changes in the legal and legislative environment and their impact on the future development of asbestos and environmental claims. Such development will be affected by future court decisions and interpretations, as well as changes in legislation applicable to such claims. Because of these future unknowns, and the uncertainties set forth above, additional liabilities may arise for amounts in excess of the current reserves. These additional amounts, or a range of these additional amounts, cannot now be reasonably estimated, and could result in a liability exceeding reserves by an amount that would be material to the Company's operating results in a future period. However, in the opinion of the Company's management, it is not likely that these claims will have a material adverse effect on the Company's financial condition or liquidity. The Company has a geographic exposure to catastrophe losses in certain areas of the country. Catastrophes can be caused by various events including hurricanes, windstorms, earthquakes, hail, severe winter weather, explosions and fires, and the incidence and severity of catastrophes are inherently unpredictable. The extent of losses from a catastrophe is a function of both the total amount of insured exposure in the area affected by the event and the severity of the event. Most catastrophes are restricted to small geographic areas; however, hurricanes and earthquakes may produce significant damage in large, heavily populated areas. The Company generally seeks to reduce its exposure to catastrophes through individual risk selection and the purchase of catastrophe reinsurance. 14. REINSURANCE The Company's insurance operations participate in reinsurance in order to limit losses, minimize exposure to large risks, provide additional capacity for future growth and effect business-sharing arrangements. Life reinsurance is accomplished through various plans of reinsurance, primarily coinsurance, modified coinsurance and yearly renewable term. Property-casualty reinsurance is placed on both a quota-share and excess of loss basis. The property-casualty insurance subsidiaries also participate as a servicing carrier for, and a member of, several pools and associations. Reinsurance ceded arrangements do not discharge the insurance subsidiaries as the primary insurer, except for cases involving a novation. 113
CITIGROUP INC. AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED) 14. REINSURANCE (CONTINUED) Reinsurance amounts included in the Consolidated Statement of Income for the years ended December 31 were as follows: <TABLE> <CAPTION> GROSS NET In Millions of Dollars AMOUNT CEDED AMOUNT -------- -------- -------- <S> <C> <C> <C> 2000 PREMIUMS Property-casualty insurance............................... $11,691 $(1,795) $ 9,896 Life insurance............................................ 2,550 (332) 2,218 Accident and health insurance............................. 530 (215) 315 ------- ------- ------- $14,771 $(2,342) $12,429 ======= ======= ======= CLAIMS INCURRED............................................. $10,779 $(1,895) $ 8,884 ======= ======= ======= 1999 PREMIUMS Property-casualty insurance............................... $10,960 $(1,722) $ 9,238 Life insurance............................................ 2,190 (314) 1,876 Accident and health insurance............................. 444 (54) 390 ------- ------- ------- $13,594 $(2,090) $11,504 ======= ======= ======= CLAIMS INCURRED............................................. $ 9,939 $(1,913) $ 8,026 ======= ======= ======= 1998 PREMIUMS Property-casualty insurance............................... $10,083 $(1,719) $ 8,364 Life insurance............................................ 1,915 (304) 1,611 Accident and health insurance............................. 410 (61) 349 ------- ------- ------- $12,408 $(2,084) $10,324 ======= ======= ======= CLAIMS INCURRED............................................. $ 9,104 $(1,578) $ 7,526 ======= ======= ======= </TABLE> Reinsurance recoverables, net of valuation allowance, at December 31 include amounts recoverable on unpaid and paid losses and were as follows: <TABLE> <CAPTION> In Millions of Dollars 2000 1999 -------- -------- <S> <C> <C> Life business............................................... $ 2,028 $1,222 Property-casualty business: Pools and associations.................................... 2,417 2,788 Other reinsurance......................................... 6,096 5,695 ------- ------ TOTAL....................................................... $10,541 $9,705 ======= ====== </TABLE> 114
CITIGROUP INC. AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED) 15. RESTRUCTURING-RELATED ITEMS <TABLE> <CAPTION> In Millions of Dollars 2000 1999 1998 -------- -------- -------- <S> <C> <C> <C> Restructuring charges....................................... $579 $ 166 $1,122 Changes in estimates........................................ (65) (401) (392) Accelerated depreciation.................................... 68 182 -- ---- ----- ------ TOTAL....................................................... $582 $ (53) $ 730 ==== ===== ====== </TABLE> During 2000, Citigroup recorded restructuring charges of $579 million, primarily consisting of exit costs related to the acquisition of Associates. The new initiatives are expected to be implemented over the next year. The charges included $241 million related to employee severance, $154 million related to exiting leasehold and other contractual obligations, and $184 million of asset impairment charges. The implementation of these restructuring initiatives will cause some related premises and equipment assets to become redundant. As a result, the remaining depreciable lives of these assets were shortened, and accelerated depreciation charges of $69 million will be recognized in subsequent periods. Of the $579 million charge, $474 million in the Associates business includes the reconfiguration of certain branch operations, the exit from non-strategic businesses and from activities as mandated by Federal bank regulations, and the consolidation and integration of Corporate and middle and back office functions. In the Global Consumer business, $51 million includes the reconfiguration of certain branch operations outside the U.S. and the downsizing and consolidation of certain back office functions in the U.S. Approximately $440 million of the $579 million charge related to operations in the United States. The $241 million portion of the charge related to employee severance reflects the costs of eliminating approximately 7,400 positions, including approximately 4,600 in Associates and 700 in the Global Consumer business. Approximately 5,000 of these positions relate to the United States. In 2000, a reserve for $23 million was recorded, $20 million of which related to the elimination of 1,600 non-U.S. positions of an acquired entity. The 2000 restructuring reserve utilization included $184 million of asset impairment charges and $71 million of severance and other exit costs (of which $40 million related to employee severance and $5 million related to leasehold and other exit costs have been paid in cash and $26 million is legally obligated), together with translation effects. In 1999, Citigroup recorded restructuring charges of $166 million, including additional severance charges of $49 million as a result of the continuing implementation of 1998 restructuring initiatives, as well as $82 million of exit costs associated with new initiatives in the Global Consumer business primarily related to the reconfiguration of certain branch operations outside the U.S., the downsizing of certain marketing operations, and the exit of a non-strategic business. The 1999 restructuring reserve was fully utilized at June 30, 2000. The 1999 charge included $35 million of integration charges recorded by Associates (the Avco charge) related to its January 6, 1999 acquisition of Avco Financial Services, Inc. (Avco). The charge included $17 million related to employee severance, $5 million related to branch closure, $7 million related to training of employees and $6 million of other integration related expenses. In addition to the 115
CITIGROUP INC. AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED) 15. RESTRUCTURING-RELATED ITEMS (CONTINUED) Avco charge, as part of the purchase price allocation of the Avco acquisition, Associates recorded a $146 million reserve (the Avco integration cost reserve) at the time of the acquisition. This reserve was established to reflect the costs of exiting certain activities that would not be continued after the acquisition. The costs primarily consisted of severance costs and related expenses, lease termination costs and other contractual liabilities. The Avco reserve was fully utilized at December 31, 1999. In 1998, Citigroup recorded a restructuring charge of $1.122 billion, reflecting exit costs associated with business improvement and integration initiatives. The 1998 restructuring reserve was fully utilized at December 31, 2000. The implementation of the 1999 and 1998 restructuring initiatives also caused certain related premises and equipment assets to become redundant. The remaining depreciable lives of these assets were shortened, and accelerated depreciation charges of $68 million and $182 million (in addition to normal scheduled depreciation on those assets) were recognized over the shortened lives in 2000 and 1999, respectively. 116
CITIGROUP INC. AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED) 15. RESTRUCTURING-RELATED ITEMS (CONTINUED) The status of the 2000, 1999, and 1998 restructuring initiatives is summarized in the following table: RESTRUCTURING RESERVE ACTIVITY <TABLE> <CAPTION> RESTRUCTURING INITIATIVES ------------------------------ In Millions of Dollars 2000 1999 1998 -------- -------- -------- <S> <C> <C> <C> Original charges............................................ $ 579 $ 117 $1,122 Additional charges.......................................... -- -- 49 ----- ----- ------ 579 117 1,171 ----- ----- ------ Acquisitions(1) 2000...................................................... 23 -- -- 1999...................................................... -- 146 -- 1998...................................................... -- -- -- ----- ----- ------ 23 146 -- ----- ----- ------ Utilization(2) 2000...................................................... (255) (51) (142) 1999...................................................... -- (212) (744) 1998...................................................... -- -- (69) ----- ----- ------ (255) (263) (955) ----- ----- ------ Changes in estimates 2000...................................................... -- -- (65) 1999...................................................... -- -- (151) 1998...................................................... -- -- -- ----- ----- ------ -- -- (216) ----- ----- ------ RESERVE BALANCE AT DECEMBER 31, 2000........................ $ 347 $ -- $ -- ===== ===== ====== </TABLE> - ------------------------ (1) Represents additions to restructuring liabilities arising from acquisitions. (2) Utilization amounts include translation effects on the restructuring reserve. Changes in estimates are attributable to facts and circumstances arising subsequent to an original restructuring charge. During 2000 and 1999, changes in estimates resulted in reductions in the reserve for 1998 restructuring initiatives of $65 million and $151 million, respectively, attributable to lower than anticipated costs of implementing certain projects and a reduction in the scope of certain initiatives. Changes in estimates related to 1997 restructuring initiatives, which were fully utilized as of December 31, 1999, were $250 million and $392 million in 1999 and 1998, respectively, and were primarily related to the Seven World Trade Center lease. Adjustments related to the Seven World Trade Center lease during 1999 were attributable to the reassessment of space needed due to the Travelers and Citicorp merger, which indicated the need for increased occupancy and the utilization of space previously considered excessive; adjustments during 1998 resulted from negotiations on a sublease 117
CITIGROUP INC. AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED) 15. RESTRUCTURING-RELATED ITEMS (CONTINUED) which indicated that excess space could be disposed of on terms more favorable than had been originally estimated. During 2000, the Company also recorded $177 million of merger-related costs which included legal, advisory and SEC filing fees, as well as other costs of administratively closing the acquisition of Associates. During 1998, the Company recorded $65 million of merger-related costs which included the direct and incremental costs of administratively closing the Travelers and Citicorp merger. 16. INCOME TAXES <TABLE> <CAPTION> In Millions of Dollars 2000 1999 1998 -------- -------- -------- <S> <C> <C> <C> CURRENT Federal..................................................... $3,295 $3,350 $2,544 Foreign..................................................... 2,301 2,198 1,206 State....................................................... 392 384 367 ------ ------ ------ 5,988 5,932 4,117 ------ ------ ------ DEFERRED Federal..................................................... 1,231 631 (170) Foreign..................................................... 197 (134) 110 State....................................................... 109 101 (150) ------ ------ ------ 1,537 598 (210) ------ ------ ------ PROVISION FOR INCOME TAX BEFORE MINORITY INTEREST(1)........ 7,525 6,530 3,907 Provision (benefit) for income taxes on cumulative effect of accounting changes........................................ -- (84) -- Income tax expense (benefit) reported in stockholders' equity related to: Foreign currency translation.............................. (108) (25) (41) Securities available for sale............................. (259) (28) (124) Employee stock plans...................................... (1,400) (1,017) (708) Other..................................................... (24) (1) (1) ------ ------ ------ INCOME TAXES BEFORE MINORITY INTEREST....................... $5,734 $5,375 $3,033 ====== ====== ====== </TABLE> - ------------------------ (1) Includes the effect of securities transactions resulting in a provision of $282 million in 2000, $189 million in 1999, and $294 million in 1998. 118
CITIGROUP INC. AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED) 16. INCOME TAXES (CONTINUED) The reconciliation of the federal statutory income tax rate to the Company's effective income tax rate applicable to income (before minority interest and cumulative effect of accounting changes) for the years ended December 31 was as follows: <TABLE> <CAPTION> 2000 1999 1998 -------- -------- -------- <S> <C> <C> <C> FEDERAL STATUTORY RATE...................................... 35.0% 35.0% 35.0% Limited taxability of investment income..................... (1.2) (1.4) (2.1) State income taxes, net of federal benefit.................. 1.6 1.7 1.3 Other, net.................................................. 0.2 0.7 1.0 ---- ---- ---- EFFECTIVE INCOME TAX RATE................................... 35.6% 36.0% 35.2% ==== ==== ==== </TABLE> Deferred income taxes at December 31 related to the following: <TABLE> <CAPTION> In Millions of Dollars 2000 1999 -------- -------- <S> <C> <C> DEFERRED TAX ASSETS Credit loss deduction....................................... $2,981 $3,003 Differences in computing policy reserves.................... 1,956 1,988 Unremitted foreign earnings................................. 2,031 1,843 Deferred compensation....................................... 1,234 1,264 Employee benefits........................................... 613 757 Interest-related items...................................... 363 374 Foreign and state loss carryforwards........................ 293 311 Other deferred tax assets................................... 1,513 1,622 ------ ------ Gross deferred tax assets................................... 10,984 11,162 Valuation allowance......................................... 220 314 ------ ------ DEFERRED TAX ASSETS AFTER VALUATION ALLOWANCE............... 10,764 10,848 ------ ------ DEFERRED TAX LIABILITIES Investments................................................. (1,534) (1,443) Deferred policy acquisition costs and value of insurance in force..................................................... (1,102) (960) Leases...................................................... (1,524) (1,350) Other deferred tax liabilities.............................. (2,349) (2,339) ------ ------ GROSS DEFERRED TAX LIABILITIES.............................. (6,509) (6,092) ------ ------ NET DEFERRED TAX ASSET...................................... $4,255 $4,756 ====== ====== </TABLE> Foreign pretax earnings approximated $6.9 billion in 2000, $5.4 billion in 1999, and $2.8 billion in 1998. As a U.S. corporation, Citigroup is subject to U.S. taxation currently on all foreign pretax earnings earned by a foreign branch. Pretax earnings of a foreign subsidiary or affiliate are subject to U.S. taxation when effectively repatriated. In addition, certain of Citigroup's U.S. income is subject to foreign income tax where the payor of such income is domiciled outside the United States. The Company provides income taxes on the undistributed earnings of non-U.S. subsidiaries except to the extent that such earnings are indefinitely invested outside the United States. At December 31, 2000, $1.5 billion of accumulated undistributed earnings of non-U.S. subsidiaries was indefinitely invested. At 119
CITIGROUP INC. AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED) 16. INCOME TAXES (CONTINUED) the existing U.S. federal income tax rate, additional taxes of $426 million would have to be provided if such earnings were remitted. Income taxes are not provided for on the Company's life insurance subsidiaries' "policyholders' surplus account" because under current U.S. tax rules such taxes will become payable only to the extent such amounts are distributed as a dividend or exceed limits prescribed by federal law. Distributions are not contemplated from this account, which aggregated $982 million (subject to a tax of $344 million) at December 31, 2000. The 2000 net change in the valuation allowance related to deferred tax assets was a decrease of $94 million primarily relating to the elimination of the $100 million valuation allowance in the life insurance group. This elimination resulted from an analysis of the availability of capital gains to offset capital losses. In management's opinion, there will be adequate capital gains to make realization of any capital losses more likely than not. The recognition of the benefit produced by the reversal of this portion of the valuation allowance was recognized by reducing goodwill. The remaining valuation allowance of $220 million at December 31, 2000 is primarily related to specific state and local, and foreign tax carryforwards or tax law restrictions on benefit recognition in the U.S. federal tax return and in the above jurisdictions. Management believes that the realization of the recognized net deferred tax asset of $4.255 billion is more likely than not based on existing carryback ability and expectations as to future taxable income. The Company has reported pretax financial statement income of approximately $17 billion, on average, over the last three years and has generated federal taxable income exceeding $10 billion, on average, each year during this same period. 17. MANDATORILY REDEEMABLE SECURITIES OF SUBSIDIARY TRUSTS The Company formed statutory business trusts under the laws of the state of Delaware, which exist for the exclusive purposes of (i) issuing Trust Securities representing undivided beneficial interests in the assets of the Trust; (ii) investing the gross proceeds of the Trust securities in junior subordinated deferrable interest debentures (subordinated debentures) of its parent; and (iii) engaging in only those activities necessary or incidental thereto. These subordinated debentures and the related income effects are eliminated in the consolidated financial statements. Distributions on the mandatorily redeemable securities of subsidiary trusts below have been classified as interest expense in the Consolidated Statement of Income. 120
CITIGROUP INC. AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED) 17. MANDATORILY REDEEMABLE SECURITIES OF SUBSIDIARY TRUSTS (CONTINUED) The following tables summarize the financial structure of each of the Company's subsidiary trusts at December 31, 2000: <TABLE> <CAPTION> COMMON TRUST SECURITIES SHARES WITH DISTRIBUTIONS ISSUANCE SECURITIES LIQUIDATION COUPON ISSUED GUARANTEED BY DATE ISSUED VALUE RATE TO PARENT - -------------------------- ---------- ---------- ----------- -------- --------- <S> <C> <C> <C> <C> <C> DOLLARS IN MILLIONS Citigroup: Citigroup Capital I....... Oct. 1996 16,000,000 $ 400 8.00% 494,880 Citigroup Capital II...... Dec. 1996 400,000 400 7.75% 12,372 Citigroup Capital III..... Dec. 1996 200,000 200 7.625% 6,186 Citigroup Capital IV...... Jan. 1998 8,000,000 200 6.85% 247,440 Citigroup Capital V....... Nov. 1998 20,000,000 500 7.00% 618,557 Citigroup Capital VI...... Mar. 1999 24,000,000 600 6.875% 742,269 ------ Total parent obligated.... $2,300 Subsidiaries: Travelers P&C Capital I... April 1996 32,000,000 $ 800 8.08% 989,720 Travelers P&C Capital II...................... May 1996 4,000,000 100 8.00% 123,720 Salomon Inc. Financing Trust I................. July 1996 13,800,000 345 9.25% 426,800 Salomon Smith Barney Holdings Inc. Capital I....................... Jan. 1998 16,000,000 400 7.20% 494,880 Citicorp Capital I........ Dec. 1996 300,000 300 7.933% 9,000 Citicorp Capital II....... Jan. 1997 450,000 450 8.015% 13,500 Citicorp Capital III...... June 1998 9,000,000 225 7.10% 270,000 ------ Total subsidiary obligated............... $2,620 ====== <CAPTION> JUNIOR SUBORDINATED DEBENTURES OWNED BY TRUST ------------------------------------------- TRUST SECURITIES REDEEMABLE WITH DISTRIBUTIONS BY ISSUER GUARANTEED BY AMOUNT MATURITY BEGINNING - -------------------------- -------- -------------- --------------- <S> <C> <C> <C> DOLLARS IN MILLIONS Citigroup: Citigroup Capital I....... $412 Sept. 30, 2036 Oct. 7, 2001 Citigroup Capital II...... 412 Dec. 1, 2036 Dec. 1, 2006 Citigroup Capital III..... 206 Dec. 1, 2036 Not redeemable Citigroup Capital IV...... 206 Jan. 22, 2038 Jan. 22, 2003 Citigroup Capital V....... 515 Nov. 15, 2028 Nov. 15, 2003 Citigroup Capital VI...... 619 Mar. 15, 2029 Mar. 15, 2004 Total parent obligated.... Subsidiaries: Travelers P&C Capital I... 825 April 30, 2036 April 30, 2001 Travelers P&C Capital II...................... 103 May 15, 2036 May 15, 2001 Salomon Inc. Financing Trust I................. 356 June 30, 2026 June 30, 2001 Salomon Smith Barney Holdings Inc. Capital I....................... 412 Jan. 28, 2038 Jan. 28, 2003 Citicorp Capital I........ 309 Feb. 15, 2027 Feb. 15, 2007 Citicorp Capital II....... 464 Feb. 15, 2027 Feb. 15, 2007 Citicorp Capital III...... 232 Aug. 15, 2028 Aug. 15, 2003 Total subsidiary obligated............... </TABLE> In each case, the coupon rate on the debentures is the same as that on the trust securities. Distributions on the trust securities and interest on the debentures are payable quarterly, except for Citigroup Capital II and III and Citicorp Capital I and II, on which distributions are payable semiannually. Salomon Inc. Financing Trust I, a wholly owned subsidiary of Salomon Smith Barney, issued TRuPS-Registered Trademark- units to the public. Each TRuPS-Registered Trademark- unit includes a security of SI Financing Trust I, and a purchase contract that requires the holder to purchase, in 2021 (or earlier if Salomon Smith Barney elects to accelerate the contract), one depositary share representing a one-twentieth interest in a share of the Company's 9.50% Cumulative Preferred Stock, Series L. Salomon Smith Barney is obligated under the terms of each purchase contract to pay contract fees of 0.25% per annum. 121
CITIGROUP INC. AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED) 18. PREFERRED STOCK AND STOCKHOLDERS' EQUITY PERPETUAL PREFERRED STOCK The following table sets forth the Company's perpetual preferred stock outstanding at December 31: <TABLE> <CAPTION> CARRYING VALUE (IN MILLIONS OF REDEEMABLE, IN REDEMPTION DOLLARS) WHOLE OR IN PART PRICE NUMBER OF -------------------- RATE ON OR AFTER(1) PER SHARE(2) SHARES 2000 1999 ---------------- ----------------- ------------ --------- -------- -------- <S> <C> <C> <C> <C> <C> <C> Series F(3).......... 6.365% June 16, 2007 $250 1,590,300 $ 397 $ 397 Series G(3).......... 6.213% July 11, 2007 $250 724,908 181 180 Series H(3).......... 6.231% September 8, 2007 $250 800,000 200 198 Series K(4).......... 8.40% March 31, 2001 $500 500,000 250 250 Series M(3).......... 5.864% October 8, 2007 $250 779,204 195 195 Series Q(5).......... Adjustable May 31, 1999 $250 688,150 172 175 Series R(5).......... Adjustable August 31, 1999 $250 400,000 100 100 Series T(5).......... 8.50% February 15, 2000 $250 600,000 -- 150 Series U(5).......... 7.75% May 15, 2000 $250 500,000 125 125 Series V(5).......... Fixed/Adjustable February 15, 2006 $500 250,000 125 125 ---------------- ----------------- ---- --------- ------ ------ $1,745 $1,895 ====== ====== </TABLE> - ------------------------ (1) Under various circumstances, the Company may redeem certain series of preferred stock at times other than described above. (2) Liquidation preference per share equals redemption price per share. (3) Issued as depositary shares, each representing a one-fifth interest in a share of the corresponding series of preferred stock. (4) Issued as depositary shares, each representing a one-twentieth interest in a share of the corresponding series of preferred stock. (5) Issued as depositary shares, each representing a one-tenth interest in a share of the corresponding series of preferred stock. All dividends on the Company's perpetual preferred stock are payable quarterly and are cumulative. Only holders of Series K Preferred Stock have voting rights. Holders of Series K Preferred Stock are entitled to three votes per share. Dividends on Series Q and R Preferred Stock are payable at rates determined quarterly by formulas based on interest rates of certain U.S. Treasury obligations, subject to certain minimum and maximum rates as specified in the certificates of designation. The weighted-average dividend rate on the Series Q and R Preferred Stock was 5.36% for 2000. Dividends on the Series V Preferred Stock are payable at 5.86% through February 15, 2006, and thereafter at rates determined quarterly by a formula based on certain interest rate indices, subject to a minimum rate of 6% and a maximum rate of 12%. The rate of dividends on the Series V Preferred Stock is subject to adjustment based upon the applicable percentage of the dividends received deduction. 122
CITIGROUP INC. AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED) 18. PREFERRED STOCK AND STOCKHOLDERS' EQUITY (CONTINUED) Citigroup redeemed Series T Preferred Stock in February 2000. REGULATORY CAPITAL Citigroup and Citicorp are subject to risk-based capital and leverage guidelines issued by the Board of Governors of the Federal Reserve System (FRB), and their U.S. insured depository institution subsidiaries, including Citibank, N.A., are subject to similar guidelines issued by their respective primary regulators. These guidelines are used to evaluate capital adequacy and include the required minimums shown in the following table. To be "well capitalized" under federal bank regulatory agency definitions, a depository institution must have a Tier 1 ratio of at least 6%, a combined Tier 1 and Tier 2 ratio of at least 10%, and a leverage ratio of at least 5%, and not be subject to a directive, order, or written agreement to meet and maintain specific capital levels. The regulatory agencies are required by law to take specific prompt actions with respect to institutions that do not meet minimum capital standards. As of December 31, 2000 and 1999, all of Citigroup's U.S. insured subsidiary depository institutions were "well capitalized." At December 31, 2000, regulatory capital as set forth in guidelines issued by the U.S. federal bank regulators is as follows: <TABLE> <CAPTION> MINIMUM CITIBANK, In Millions of Dollars REQUIREMENT CITIGROUP CITICORP N.A. ----------- --------- -------- --------- <S> <C> <C> <C> <C> Tier 1 capital...................................... $54,498 $39,702 $24,624 Total capital(1).................................... 73,048 58,010 36,801 Tier 1 capital ratio................................ 4.00% 8.38% 8.41% 8.46% Total capital ratio(1).............................. 8.00% 11.23% 12.29% 12.64% Leverage ratio(2)................................... 3.00% 5.97% 7.54% 6.66% </TABLE> - ------------------------ (1) Total capital includes Tier 1 and Tier 2. (2) Tier 1 capital divided by adjusted average assets. There are various legal limitations on the extent to which Citigroup's banking subsidiaries may pay dividends to their parents. Citigroup's national and state-chartered bank subsidiaries can declare dividends to their respective parent companies in 2001, without regulatory approval, of approximately $7.2 billion, adjusted by the effect of their net income (loss) for 2001 up to the date of any such dividend declaration. In determining whether and to what extent to pay dividends, each bank subsidiary must also consider the effect of dividend payments on applicable risk-based capital and leverage ratio requirements as well as policy statements of the federal regulatory agencies that indicate that banking organizations should generally pay dividends out of current operating earnings. Consistent with these considerations, Citigroup estimates that its bank subsidiaries can distribute dividends to Citigroup of approximately $6.4 billion of the available $7.2 billion, adjusted by the effect of their net income (loss) up to the date of any such dividend declaration. The property-casualty insurance subsidiaries' statutory capital and surplus at December 31, 2000 and 1999 was $7.634 billion (including Associates) and $7.758 billion, respectively. The life insurance subsidiaries' statutory capital and surplus at December 31, 2000 and 1999 was $6.079 billion and $5.836 billion, respectively. Statutory capital and surplus are subject to certain restrictions imposed by state insurance departments as to the transfer of funds and payment of dividends. The property- 123
CITIGROUP INC. AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED) 18. PREFERRED STOCK AND STOCKHOLDERS' EQUITY (CONTINUED) casualty insurance subsidiaries' statutory net income for the years ended December 31, 2000, 1999, and 1998 was $1.445 billion (including Associates), $1.500 billion, and $1.426 billion, respectively. The life insurance subsidiaries' statutory net income for the years ended December 31, 2000, 1999 and 1998 was $1.090 million, $988 million and $829 million, respectively. Statutory capital and surplus and statutory net income are determined in accordance with statutory accounting practices. TIC is subject to various regulatory restrictions that limit the maximum amount of dividends available to its parent without prior approval of the Connecticut Insurance Department. A maximum of $984 million of statutory surplus is available by the end of the year 2001 for such dividends without the prior approval of the Connecticut Insurance Department. TPC's insurance subsidiaries are subject to various regulatory restrictions that limit the maximum amount of dividends available to be paid to their parent without prior approval of insurance regulatory authorities. A maximum of $1.2 billion is available by the end of the year 2001 for such dividends without prior approval of the Connecticut Insurance Department. Certain of the Company's U.S. and non-U.S. broker-dealer subsidiaries are subject to various securities and commodities regulations and capital adequacy requirements promulgated by the regulatory and exchange authorities of the countries in which they operate. The principal regulated subsidiaries, their net capital requirement or equivalent and excess over the minimum requirement as of December 31, 2000 are as follows: <TABLE> <CAPTION> EXCESS OVER NET CAPITAL MINIMUM SUBSIDIARY JURISDICTION OR EQUIVALENT REQUIREMENT ---------- --------------------------------- ------------- ----------- <S> <C> <C> <C> In Millions of Dollars Salomon Smith Barney Inc. U.S. Securities and Exchange $3,573 $3,068 Commission Uniform Net Capital Rule (Rule 15c3-1)............. Salomon Brothers International Limited United Kingdom's Securities and 2,689 757 Futures Authority.............. </TABLE> 124
CITIGROUP INC. AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED) 19. CHANGES IN EQUITY FROM NONOWNER SOURCES Changes in each component of "Accumulated Other Changes in Equity from Nonowner Sources" for the three-year period ended December 31, 2000 are as follows: <TABLE> <CAPTION> ACCUMULATED NET OTHER UNREALIZED FOREIGN CHANGES IN GAINS ON CURRENCY EQUITY FROM INVESTMENT TRANSLATION NONOWNER In Millions of Dollars SECURITIES ADJUSTMENT SOURCES ---------- ----------- ----------- <S> <C> <C> <C> BALANCE, JAN. 1, 1998....................................... $1,697 $(447) $1,250 Unrealized gains on investment securities, net of tax of $170...................................................... 283 283 Less: Reclassification adjustment for gains included in net income, net of tax of ($294).............................. (547) (547) Foreign currency translation adjustment, net of tax of ($41)..................................................... (2) (2) ------ ----- ------ CURRENT PERIOD CHANGE....................................... (264) (2) (266) ------ ----- ------ BALANCE, DEC. 31, 1998...................................... 1,433 (449) 984 Unrealized gains on investment securities, net of tax of $161...................................................... 566 566 Less: Reclassification adjustment for gains included in net income, net of tax of ($189).............................. (352) (352) Foreign currency translation adjustment, net of tax of ($25)..................................................... (43) (43) ------ ----- ------ CURRENT PERIOD CHANGE....................................... 214 (43) 171 ------ ----- ------ BALANCE, DEC. 31, 1999...................................... 1,647 (492) 1,155 Unrealized gains on investment securities, net of tax of $23....................................................... (150) (150) Less: Reclassification adjustment for gains included in net income, net of tax of ($282).............................. (524) (524) Foreign currency translation adjustment, net of tax of ($108).................................................... (358) (358) ------ ----- ------ CURRENT PERIOD CHANGE....................................... (674) (358) (1,032) ------ ----- ------ BALANCE, DEC. 31, 2000...................................... $ 973 $(850) $ 123 ====== ===== ====== </TABLE> 20. EARNINGS PER SHARE Earnings per share has been computed in accordance with the provisions of SFAS No. 128. Shares have been adjusted to give effect to the four-for-three stock split in Citigroup's common stock in 125
CITIGROUP INC. AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED) 20. EARNINGS PER SHARE (CONTINUED) August 2000. The following is a reconciliation of the income and share data used in the basic and diluted earnings per share computations for the years ended December 31: <TABLE> <CAPTION> In Millions of Dollars, Except Per Share Amounts 2000 1999 1998 -------- -------- -------- <S> <C> <C> <C> INCOME BEFORE CUMULATIVE EFFECT OF ACCOUNTING CHANGES....... $13,519 $11,370 $ 6,950 Cumulative effect of accounting changes..................... -- (127) -- Preferred dividends......................................... (116) (149) (216) ------- ------- ------- INCOME AVAILABLE TO COMMON STOCKHOLDERS FOR BASIC EPS....... 13,403 11,094 6,734 Effect of dilutive securities............................... -- 10 24 ------- ------- ------- INCOME AVAILABLE TO COMMON STOCKHOLDERS FOR DILUTED EPS..... $13,403 $11,104 $ 6,758 ======= ======= ======= WEIGHTED AVERAGE COMMON SHARES OUTSTANDING APPLICABLE TO BASIC EPS................................................. 4,977.0 4,979.2 4,995.1 ------- ------- ------- Effect of dilutive securities: Options................................................... 110.9 103.3 83.4 Restricted stock.......................................... 33.2 34.8 37.0 Convertible securities.................................... 1.1 10.5 23.6 Warrants.................................................. -- -- 4.6 ------- ------- ------- ADJUSTED WEIGHTED AVERAGE COMMON SHARES OUTSTANDING APPLICABLE TO DILUTED EPS................................. 5,122.2 5,127.8 5,143.7 ======= ======= ======= BASIC EARNINGS PER SHARE Income before cumulative effect of accounting changes....... $ 2.69 $ 2.26 $ 1.35 Cumulative effect of accounting changes..................... -- (0.03) -- ------- ------- ------- NET INCOME.................................................. $ 2.69 $ 2.23 $ 1.35 ======= ======= ======= DILUTED EARNINGS PER SHARE Income before cumulative effect of accounting changes....... $ 2.62 $ 2.19 $ 1.31 Cumulative effect of accounting changes..................... -- (0.02) -- ------- ------- ------- NET INCOME.................................................. $ 2.62 $ 2.17 $ 1.31 ======= ======= ======= </TABLE> During 2000, 1999 and 1998, weighted average options of 28.1 million shares, 42.7 million shares and 38.3 million shares with weighted average exercise prices of $58.32 per share, $40.81 per share, and $31.28 per share, respectively, were excluded from the computation of diluted EPS because the options' exercise price was greater than the average market price of the Company's common stock. 21. INCENTIVE PLANS The Company has adopted a number of compensation plans to attract, retain and motivate officers and employees, to compensate them for their contributions to the growth and profits of the Company, and to encourage employee stock ownership. At December 31, 2000, approximately 325 million shares were available for grant under Citigroup's stock option and restricted stock plans. 126
CITIGROUP INC. AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED) 21. INCENTIVE PLANS (CONTINUED) STOCK OPTION PLANS The Company has a number of stock option plans that provide for the granting of stock options to officers and employees. Options are granted at the fair market value of Citigroup common stock at the time of grant for a period of ten years. Generally, options granted under Travelers predecessor plans and options granted since the date of the merger vest over a five-year period. Generally, 50% of the options granted under Citicorp predecessor plans prior to the merger are exercisable beginning on the third anniversary and 50% beginning on the fourth anniversary of the date of grant. Generally, options granted under Associates predecessor plans vest over a three-year period. Certain of the plans also permit an employee exercising an option to be granted new options (reload options) in an amount equal to the number of common shares used to satisfy the exercise price and the withholding taxes due upon exercise. The reload options are granted for the remaining term of the related original option and vest after six months. To further encourage employee stock ownership the Company's eligible employees participate in either the WealthBuilder or CitiBuilder stock option programs. Options granted under the WealthBuilder program vest over a five-year period whereas options granted under the CitiBuilder program vest after five years. These options do not have a reload feature. During 1998, a group of key Citicorp employees was granted 12,680,000 performance-based options at an equivalent Citigroup strike price of $24.13. At December 31, 1998 12,010,000 of these options were unvested. During 1999 12,010,000 of these options vested when Citigroup's stock price reached $40.00 per share. The cost of performance-based options is measured as the difference between the exercise price and market price required for vesting. After-tax expense recognized on these performance-based options was $68 million and $43 million in 1999 and 1998, respectively. Information with respect to stock option activity under Citigroup stock option plans for the years ended December 31, 2000, 1999 and 1998 is as follows: <TABLE> <CAPTION> 2000 1999 1998 ----------------------- ---------------------- ------------------------ WEIGHTED WEIGHTED WEIGHTED AVERAGE AVERAGE AVERAGE EXERCISE EXERCISE EXERCISE OPTIONS PRICE OPTIONS PRICE OPTIONS PRICE ------------ -------- ----------- -------- ----------- -------- <S> <C> <C> <C> <C> <C> <C> OUTSTANDING, BEGINNING OF YEAR.......................... 377,082,042 $23.69 419,060,809 $20.37 276,668,962 $14.09 Granted-original................ 86,287,613 43.57 29,869,276 34.46 199,869,665(1) 24.71 Granted-reload.................. 57,637,033 49.50 39,352,789 37.61 40,096,928 31.02 Forfeited....................... (20,672,028) 27.11 (18,106,937) 20.43 (17,917,844) 18.25 Exercised....................... (127,787,248) 26.14 (93,093,895) 18.70 (79,656,902) 15.18 ------------ ------ ----------- ------ ----------- ------ OUTSTANDING, END OF YEAR........ 372,547,412 $30.55 377,082,042 $23.69 419,060,809 $20.37 ------------ ----------- ----------- EXERCISABLE AT YEAR END......... 118,330,975 113,813,418 98,844,799 ============ =========== =========== </TABLE> - ------------------------ (1) Original grants in 1998 included approximately 129 million options granted in November 1998 to retain key employees and to encourage stock ownership in the newly merged Citigroup. 127
CITIGROUP INC. AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED) 21. INCENTIVE PLANS (CONTINUED) The following table summarizes the information about stock options outstanding under Citigroup stock option plans at December 31, 2000: <TABLE> <CAPTION> OPTIONS OUTSTANDING OPTIONS EXERCISABLE ------------------------------------ ---------------------- WEIGHTED AVERAGE WEIGHTED WEIGHTED CONTRACTUAL AVERAGE AVERAGE NUMBER LIFE EXERCISE NUMBER EXERCISE RANGE OF EXERCISE PRICES OUTSTANDING REMAINING PRICE EXERCISABLE PRICE - ------------------------ ----------- ----------- -------- ----------- -------- <C> <C> <S> <C> <C> <C> $ 0.03 - $ 9.99 24,189,385 3.1 years $ 6.55 21,773,644 $ 6.38 $10.00 - $19.99 20,781,461 5.1 years 13.49 15,676,563 13.71 $20.00 - $29.99 170,026,887 7.2 years 23.64 51,298,401 23.38 $30.00 - $39.99 35,707,224 7.6 years 33.48 11,129,954 33.77 $40.00 - $49.99 93,874,987 8.6 years 45.06 16,232,881 46.62 $50.00 - $58.38 27,967,468 4.6 years 53.58 2,219,532 50.51 ----------- --------- ------ ----------- ------ 372,547,412 7.0 years $30.55 118,330,975 $23.64 =========== ========= ====== =========== ====== </TABLE> THE RESTRICTED STOCK PLANS The Company through its Capital Accumulation Plan and other restricted stock programs, issues shares of Citigroup common stock in the form of restricted stock to participating officers and employees. The restricted stock generally vests after a two or three-year period. Except under limited circumstances, during this period the stock cannot be sold or transferred by the participant, who is required to render service during the restricted period. Certain participants may elect to receive part of their awards in restricted stock and part in stock options. Unearned compensation expense associated with the restricted stock grants represents the market value of Citigroup common stock at the date of grant and is recognized as a charge to income ratably over the vesting period. Information with respect to restricted stock awards is as follows: <TABLE> <CAPTION> 2000 1999 1998 ---------- ---------- ---------- <S> <C> <C> <C> Shares awarded........................................... 27,989,280 14,577,765 20,889,347 Weighted average fair market value per share............. $40.66 $28.52 $25.06 After-tax compensation cost charged to earnings (IN MILLIONS OF DOLLARS)................................... $417 $269 $243 </TABLE> In 1998 certain employees of SSB received Deferred Stock Awards (DSAs). A DSA award is an unfunded promise to deliver shares at the end of a three-year deferral period. It is comprised of a basic award representing a portion of the participant's prior year incentive award, and an additional premium award amounting to 33% of the basic award which vests one-third per year over a three-year period. Participants may elect to receive a portion of their award in the form of stock options. The basic portion of the award is expensed in the bonus year that it was earned. The expense associated with the additional 33% premium award is amortized over the appropriate vesting period. After-tax expense of approximately $150 million was recognized during 1998 for 1998 awards that were granted in January of 1999. 128
CITIGROUP INC. AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED) 21. INCENTIVE PLANS (CONTINUED) CITIBUILDER 401(k) Prior to 1999, under the Savings Incentive Plan, eligible Citicorp employees received awards equal to 3% of their covered salary. Employees had the option of receiving their award in cash or deferring some or all of it in various investment funds. The Company granted an additional award equal to the amount elected to be deferred by the employee. The after-tax expense associated with the plan amounted to $68 million in 1998. During 1999, the CitiBuilder 401(k) plan replaced the Savings Incentive Plan. Under the CitiBuilder 401(k) plan, eligible employees receive awards up to 3% of their total compensation deferred into the Citigroup common stock fund. The after-tax expense associated with this plan amounted to $29 million in 2000 and $31 million in 1999. STOCK PURCHASE PLAN The offering under the Citigroup 2000 Stock Purchase Plan allowed eligible employees of Citigroup to enter into fixed subscription agreements to purchase shares at the market value on the date of the agreements. Enrolled employees are permitted to make one purchase prior to the expiration date. Shares of Citigroup's common stock delivered under the 2000 Stock Purchase plan are to be sourced from authorized and unissued shares or treasury shares. The offering under the 1997 Stock Purchase Plan allowed eligible employees of Citicorp to enter into fixed subscription agreements to purchase shares at the market value on the date of the agreements. Such shares could be purchased from time to time through the expiration date. Shares of Citigroup's common stock delivered under the Stock Purchase Plan were sourced from treasury shares. Following is the share activity under the 2000 and 1997 fixed-price offerings for the purchase of shares at the equivalent Citigroup price of $52.92 and $22.65 per share, respectively. The 1997 offering expired on June 30, 1999. <TABLE> <CAPTION> 2000 1999 1998 ---------- ---------- ---------- <S> <C> <C> <C> OUTSTANDING SUBSCRIBED SHARES AT BEGINNING OF YEAR....... -- 15,090,212 20,378,760 Subscriptions entered into............................... 24,618,050 -- -- Shares purchased......................................... 1,647 13,765,639 3,447,944 Canceled or terminated................................... 534,740 1,324,573 1,840,604 ---------- ---------- ---------- OUTSTANDING SUBSCRIBED SHARES AT END OF YEAR............. 24,081,663 -- 15,090,212 ========== ========== ========== </TABLE> PRO FORMA IMPACT OF SFAS NO. 123 The Company applies APB Opinion No. 25, "Accounting for Stock Issued to Employees," and related interpretations in accounting for its stock-based compensation plans under which there is generally no charge to earnings for employee stock option awards (other than performance-based options) and the dilutive effect of outstanding options is reflected as additional share dilution in the computation of earnings per share. Alternatively, Financial Accounting Standards Board (FASB) rules would permit a method under which a compensation cost for all stock awards would be calculated and recognized over the service period (generally equal to the vesting period). This compensation cost would be determined in a 129
CITIGROUP INC. AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED) 21. INCENTIVE PLANS (CONTINUED) manner prescribed by the FASB using option pricing models, intended to estimate the fair value of the awards at the grant date. Earnings per share dilution would be recognized as well. Under both methods, an offsetting increase to stockholders' equity is recorded equal to the amount of compensation expense charged. Had the Company applied SFAS No. 123 in accounting for the Company's stock option plans, net income and net income per share would have been the pro forma amounts indicated below: <TABLE> <CAPTION> In Millions of Dollars, Except Per Share Amounts 2000 1999 1998 -------- -------- -------- <S> <C> <C> <C> <C> COMPENSATION EXPENSE RELATED TO STOCK OPTION PLANS As reported..................... $ -- $ 108 $ 70 Pro forma....................... 919 818 518 ------- ------- ------ Net income As reported..................... $13,519 $11,243 $6,950 Pro forma....................... 12,931 10,782 6,659 ------- ------- ------ Basic earnings per share As reported..................... $ 2.69 $ 2.23 $ 1.35 Pro forma....................... 2.57 2.11 1.29 ------- ------- ------ Diluted earnings per share As reported..................... $ 2.62 $ 2.17 $ 1.31 Pro forma....................... 2.50 2.05 1.26 ======= ======= ====== </TABLE> The pro forma adjustments relate to stock options granted from 1995 through 2000, for which a fair value on the date of grant was determined using a Black-Scholes option pricing model. No effect has been given to options granted prior to 1995. The pro forma information above reflects the compensation expense that would have been recognized under SFAS No. 123 for Travelers, Citicorp and Associates. The fair values of stock-based awards are based on assumptions that were determined at the grant date. SFAS No. 123 requires that reload options be treated as separate grants from the related original grants. Under the Company's reload program, upon exercise of an option, employees tender previously owned shares to pay the exercise price and surrender shares otherwise to be received for related tax withholding, and receive a reload option covering the same number of shares tendered for such purposes. Reload options vest at the end of a six-month period. Reload options are intended to encourage employees to exercise options at an earlier date and to retain the shares so acquired, in furtherance of the Company's long-standing policy of encouraging increased employee stock ownership. The result of this program is that employees generally will exercise options as soon as they are able and, therefore, these options have shorter expected lives. Shorter option lives result in lower valuations using a Black-Scholes option model. However, such values are expensed more quickly due to the shorter vesting period of reload options. In addition, since reload options are treated as separate grants, the existence of the reload feature results in a greater number of options being valued. Shares received through option exercises under the reload program are subject to restrictions on sale. Discounts (as measured by the estimated cost of protection) have been applied to the fair value of options granted to reflect these sale restrictions. 130
CITIGROUP INC. AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED) 21. INCENTIVE PLANS (CONTINUED) Additional valuation and related assumption information for Citigroup option plans, Travelers option plans (including options granted after the merger date), and Citicorp option plans prior to the merger date as presented below: <TABLE> <CAPTION> CITIGROUP CITIGROUP TRAVELERS CITICORP OPTION PLANS OPTION PLANS OPTION PLANS OPTION PLANS FOR OPTIONS GRANTED DURING 2000 1999 1998 1998 - -------------------------- ------------ ------------ ------------ ------------ <S> <C> <C> <C> <C> WEIGHTED AVERAGE FAIR VALUE Option........................................ $9.94 $10.65 $7.21 $8.59 1998 performance option....................... -- -- -- 6.41 -------- -------- -------- -------- WEIGHTED AVERAGE EXPECTED LIFE Original grants............................... 3 YEARS 3 years 3 years 6 years Reload grants................................. 1 YEAR 1 year 1 year -- -------- -------- -------- -------- VALUATION ASSUMPTIONS Expected volatility........................... 41.35% 46.1% 37.0% 25% Risk-free interest rate....................... 6.17% 5.17% 4.72% 5.51% Expected annual dividends per share........... $0.76 $0.47 $0.32 $0.58 Expected annual forfeitures................... 5% 5% 5% 5% </TABLE> 22. RETIREMENT BENEFITS The Company has several non-contributory defined benefit pension plans covering substantially all U.S. employees and has various defined benefit pension termination indemnity plans covering employees outside the United States. During the 1999 first quarter, the U.S. defined benefit plan was amended to convert the benefit formula for certain employees of Citicorp to a cash balance formula. Employees satisfying certain age and service requirements remain covered by the prior final pay formula. The Company also offers postretirement health care and life insurance benefits to certain eligible U.S. retired employees, as well as to certain eligible employees outside the United States. The following tables summarize the components of net benefit expense recognized in the consolidated statement of income and the funded status and amounts recognized in the consolidated balance sheet for the Company's U.S. plans and significant plans outside the United States. NET BENEFIT EXPENSE <TABLE> <CAPTION> POSTRETIREMENT PENSION PLANS BENEFIT PLANS(1) --------------------------------------------------------------- ------------------------------ U.S. PLANS PLANS OUTSIDE U.S. U.S. PLANS ------------------------------ ------------------------------ ------------------------------ In Millions of Dollars 2000 1999 1998 2000 1999 1998 2000 1999 1998 -------- -------- -------- -------- -------- -------- -------- -------- -------- <S> <C> <C> <C> <C> <C> <C> <C> <C> <C> Benefits earned during the year......................... $238 $264 $257 $ 95 $ 89 $76 $12 $16 $19 Interest cost on benefit obligation................... 527 494 476 102 98 88 73 68 69 Expected return on plan assets....................... (757) (688) (594) (106) (90) (84) (18) (16) (14) Amortization of unrecognized: Net transition (asset) obligation................. 1 (17) (18) 5 4 3 -- -- -- Prior service cost........... (9) (6) 19 -- -- -- (5) (5) (2) Net actuarial loss (gain).... (29) 14 7 (1) 6 3 (9) 2 (6) Curtailment (gain) loss...... -- -- (15) -- -- 2 (29) (29) -- ---- ---- ---- ---- ---- --- --- --- --- NET (BENEFIT) EXPENSE.......... $(29) $ 61 $132 $ 95 $107 $88 $24 $36 $66 ==== ==== ==== ==== ==== === === === === </TABLE> - -------------------------- (1) For plans outside the U.S., net postretirement benefit expense totaled $13 million in 2000, $13 million in 1999, and $10 million in 1998. 131
CITIGROUP INC. AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED) 22. RETIREMENT BENEFITS (CONTINUED) PREPAID BENEFIT COST (BENEFIT LIABILITY) <TABLE> <CAPTION> POSTRETIREMENT PENSION PLANS BENEFIT PLANS(3) ----------------------------------------- ------------------- PLANS OUTSIDE U.S. PLANS(1) U.S.(2) U.S. PLANS ------------------- ------------------- ------------------- In Millions of Dollars at Year-end 2000 1999 2000 1999 2000 1999 -------- -------- -------- -------- -------- -------- <S> <C> <C> <C> <C> <C> <C> CHANGE IN BENEFIT OBLIGATION Benefit obligation at beginning of year.............. $6,630 $7,591 $1,632 $1,658 $ 946 $1,076 Benefits earned during the year...................... 238 264 95 89 12 16 Interest cost on benefit obligation.................. 527 494 102 98 73 68 Plan amendments...................................... 1 (237) (5) 10 (3) (18) Actuarial (gain) loss................................ 327 (1,159) 109 (2) 95 (131) Benefits paid........................................ (351) (314) (68) (100) (77) (66) Acquisitions......................................... 24 -- 59 4 -- 33 Expenses............................................. (14) (9) -- -- -- -- Curtailment.......................................... -- -- (8) -- (31) (32) Settlements.......................................... -- -- (8) (5) -- -- Foreign exchange impact.............................. -- -- (114) (120) -- -- ------ ------ ------ ------ ------ ------ BENEFIT OBLIGATION AT END OF YEAR.................... $7,382 $6,630 $1,794 $1,632 $1,015 $ 946 ====== ====== ====== ====== ====== ====== CHANGE IN PLAN ASSETS Plan assets at fair value at beginning of year....... $8,638 $7,943 $1,421 $1,286 $ 217 $ 191 Actual return on plan assets......................... 102 967 17 209 1 26 Company contributions................................ 71 51 104 106 77 66 Employee contributions............................... -- -- 4 4 -- -- Acquisitions......................................... 32 -- 47 -- -- -- Settlements.......................................... -- -- (5) (5) -- -- Benefits paid........................................ (351) (314) (68) (100) (77) (66) Expenses............................................. (14) (9) -- -- -- -- Foreign exchange impact.............................. -- -- (99) (79) -- -- ------ ------ ------ ------ ------ ------ PLAN ASSETS AT FAIR VALUE AT END OF YEAR............. $8,478 $8,638 $1,421 $1,421 $ 218 $ 217 ====== ====== ====== ====== ====== ====== RECONCILIATION OF PREPAID (ACCRUED) BENEFIT COST AND TOTAL AMOUNT RECOGNIZED Funded status of the plan............................ $1,096 $2,008 $ (373) $ (211) $ (797) $ (729) Unrecognized: Net transition obligation (asset).................. -- 1 26 23 -- -- Prior service cost................................. (114) (123) 8 16 (26) (28) Net actuarial (gain) loss.......................... (589) (1,591) 148 (26) (88) (208) ------ ------ ------ ------ ------ ------ NET AMOUNT RECOGNIZED................................ $ 393 $ 295 $ (191) $ (198) $ (911) $ (965) ====== ====== ====== ====== ====== ====== AMOUNTS RECOGNIZED IN THE STATEMENT OF FINANCIAL POSITION CONSIST OF Prepaid benefit cost................................. $ 848 $ 709 $ 131 $ 109 $ -- $ -- Accrued benefit liability............................ (513) (462) (365) (326) (911) (965) Intangible asset..................................... 58 48 43 19 -- -- ------ ------ ------ ------ ------ ------ NET AMOUNT RECOGNIZED................................ $ 393 $ 295 $ (191) $ (198) $ (911) $ (965) ====== ====== ====== ====== ====== ====== </TABLE> - -------------------------- (1) For unfunded U.S. plans, the aggregate benefit obligation was $537 million and $509 million, and the aggregate accumulated benefit obligation was $475 million and $428 million at December 31, 2000 and 1999, respectively. 132
CITIGROUP INC. AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED) 22. RETIREMENT BENEFITS (CONTINUED) (2) For plans outside the U.S., the aggregate benefit obligation was $1.175 billion and $558 million, and the fair value of plan assets was $700 million and $174 million at December 31, 2000 and 1999, respectively, for plans whose benefit obligation exceeds plan assets. The aggregate accumulated benefit obligation was $440 million and $320 million, and the fair value of plan assets was $167 million and $45 million at December 31, 2000 and 1999, respectively, for plans whose accumulated benefit obligation exceeds plan assets. (3) For plans outside the U.S., the accumulated postretirement benefit obligation was $88 million and $84 million and the postretirement benefit liability was $44 million and $53 million at December 31, 2000 and 1999, respectively. The expected long-term rates of return on assets used in determining the Company's pension and postretirement expense are shown below. <TABLE> <CAPTION> 2000 1999 1998 ------------- ------------- ------------- <S> <C> <C> <C> RATE OF RETURN ON ASSETS U.S. plans.................................... 9.0% TO 9.5% 9.0% to 9.5% 9.0% to 9.5% Plans outside the U.S.(1)..................... 2.5% TO 12.0% 2.5% to 12.5% 4.0% to 12.0% </TABLE> - ------------------------ (1) Excluding highly inflationary countries. The principal assumptions used in determining pension and postretirement benefit obligations for the Company's plans are shown in the following table. <TABLE> <CAPTION> 2000 1999 ------------- ------------- <S> <C> <C> AT YEAR-END DISCOUNT RATE U.S. plans................................................ 7.5% 7.75% to 8.0% Plans outside the U.S.(1)................................. 2.5% TO 12.0% 3.0% to 12.0% FUTURE COMPENSATION INCREASE RATE U.S. plans................................................ 4.0% TO 6.5% 4.5% to 5.0% Plans outside the U.S.(1)................................. 2.5% TO 12.0% 2.5% to 12.0% HEALTH CARE COST INCREASE RATE--U.S. PLANS Following year............................................ 7.0% TO 8.5% 6.0% to 8.0% Decreasing to the year 2008............................... 5.0% 5.0% to 5.5% </TABLE> - ------------------------ (1) Excluding highly inflationary countries. As an indicator of sensitivity, increasing the assumed health care cost trend rate by 1% in each year would have increased the accumulated postretirement benefit obligation as of December 31, 2000 by $38 million and the aggregate of the benefits earned and interest components of 2000 net postretirement benefit expense by $4 million. Decreasing the assumed health care cost trend rate by 1% in each year would have decreased the accumulated postretirement benefit obligation as of December 31, 2000 by $36 million and the aggregate of the benefits earned and interest components of 2000 net postretirement benefit expense by $4 million. 133
CITIGROUP INC. AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED) 23. TRADING SECURITIES, COMMODITIES, DERIVATIVES, AND RELATED RISKS DERIVATIVE AND FOREIGN EXCHANGE CONTRACTS <TABLE> <CAPTION> BALANCE SHEET NOTIONAL CREDIT PRINCIPAL AMOUNTS EXPOSURE(1)(2) ------------------- ------------------- In Billions of Dollars at Year-end 2000 1999(3) 2000 1999 -------- -------- -------- -------- <S> <C> <C> <C> <C> INTEREST RATE PRODUCTS Futures contracts.......................................... $ 293.6 $ 632.3 $ -- $ -- Forward contracts.......................................... 984.8 701.8 1.4 0.9 Swap agreements............................................ 3,707.0 3,409.5 11.6 8.9 Options.................................................... 636.4 616.4 0.8 0.4 FOREIGN EXCHANGE PRODUCTS Futures contracts.......................................... 6.7 4.1 -- -- Forward contracts.......................................... 1,483.5 1,403.9 10.6 7.4 Cross-currency swaps....................................... 238.2 171.0 1.7 2.9 Options.................................................... 251.9 225.3 0.9 1.1 EQUITY PRODUCTS............................................ 175.1 136.6 6.3 9.3 COMMODITY PRODUCTS......................................... 38.9 34.3 1.7 0.4 CREDIT DERIVATIVE PRODUCTS................................. 73.5 54.2 0.2 0.3 ----- ----- $35.2 $31.6 ===== ===== </TABLE> - ------------------------ (1) There is no balance sheet credit exposure for futures contracts because they settle daily in cash, and none for written options because they represent obligations (rather than assets) of Citigroup. (2) The balance sheet credit exposure reflects $78.8 billion and $65.4 billion of master netting agreements in effect at December 31, 2000 and December 31, 1999, respectively. Master netting agreements mitigate credit risk by permitting the offset of amounts due from and to individual counterparties in the event of counterparty default. In addition, Citibank has securitized and sold net receivables, and the associated credit risk related to certain derivative and foreign exchange contracts via Markets Assets Trust, which amounted to $2.0 billion and $2.2 billion at December 31, 2000 and December 31, 1999, respectively. (3) Amounts for 1999 were reclassified to conform to the 2000 presentation. Citigroup enters into derivative and foreign exchange futures, forwards, options, and swaps, which enable customers to transfer, modify, or reduce their interest rate, foreign exchange, and other market risks, and also trades these products for its own account. In addition, Citigroup uses derivatives and other instruments, primarily interest rate products, as an end-user in connection with its risk management activities. Derivatives are used to manage interest rate risk relating to specific groups of on-balance sheet assets and liabilities, including investments, commercial and consumer loans, deposit liabilities, long-term debt, and other interest-sensitive assets and liabilities, as well as credit card securitizations, redemptions and sales. In addition, foreign exchange contracts are used to hedge non-U.S. dollar denominated debt, net capital exposures, and foreign exchange transactions. Through the effective use of derivatives, Citigroup has been able to modify the volatility of its revenue from asset and liability positions. Derivative instruments with leverage features are not utilized in connection 134
CITIGROUP INC. AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED) 23. TRADING SECURITIES, COMMODITIES, DERIVATIVES, AND RELATED RISKS (CONTINUED) with risk management activities. The preceding table presents the aggregate notional principal amounts of Citigroup's outstanding derivative and foreign exchange contracts at December 31, 2000 and 1999, along with the related balance sheet credit exposure. The table includes all contracts with third parties, including both trading and end-user positions. Futures and forward contracts are commitments to buy or sell at a future date a financial instrument, commodity, or currency at a contracted price, and may be settled in cash or through delivery. Swap contracts are commitments to settle in cash at a future date or dates which may range from a few days to a number of years, based on differentials between specified financial indices, as applied to a notional principal amount. Option contracts give the purchaser, for a fee, the right, but not the obligation, to buy or sell within a limited time, a financial instrument or currency at a contracted price that may also be settled in cash, based on differentials between specified indices. Citigroup also sells various financial instruments that have not been purchased (short sales). In order to sell securities short, the securities are borrowed or received as collateral in conjunction with short-term financing agreements and, at a later date, must be delivered (i.e. replaced) with like or substantially the same financial instruments or commodities to the parties from which they were originally borrowed. Derivatives and short sales may expose Citigroup to market risk or credit risk in excess of the amounts recorded on the balance sheet. Market risk on a derivative, short sale, or foreign exchange product is the exposure created by potential fluctuations in interest rates, foreign exchange rates, and other values, and is a function of the type of product, the volume of transactions, the tenor and terms of the agreement, and the underlying volatility. Credit risk is the exposure to loss in the event of nonperformance by the other party to the transaction and if the value of collateral held, if any, was not adequate to cover such losses. The recognition in earnings of unrealized gains on these transactions is subject to management's assessment as to collectibility. Liquidity risk is the potential exposure that arises when the size of the derivative position may not be able to be rapidly adjusted in times of high volatility and financial stress at a reasonable cost. 135
CITIGROUP INC. AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED) 23. TRADING SECURITIES, COMMODITIES, DERIVATIVES, AND RELATED RISKS (CONTINUED) END-USER INTEREST RATE, FOREIGN EXCHANGE, AND CREDIT DERIVATIVE CONTRACTS <TABLE> <CAPTION> NOTIONAL PRINCIPAL AMOUNTS(1) PERCENTAGE OF 2000 AMOUNT MATURING ------------------- --------------------------------------------------------------- DEC. 31, DEC. 31, WITHIN 1 TO 2 TO 3 TO 4 TO AFTER In Billions of Dollars 2000 1999 1 YEAR 2 YEARS 3 YEARS 4 YEARS 5 YEARS 5 YEARS -------- -------- -------- -------- -------- -------- -------- -------- <S> <C> <C> <C> <C> <C> <C> <C> <C> INTEREST RATE PRODUCTS Futures contracts.............. $ 2.3 $ 7.8 100% --% --% --% --% --% Forward contracts.............. 3.0 3.3 100 -- -- -- -- -- Swap agreements................ 102.2 113.9 22 17 14 9 12 26 Option contracts............... 13.6 7.1 17 24 2 -- 50 7 FOREIGN EXCHANGE PRODUCTS Futures and forward contracts.................... 65.4 53.4 99 1 -- -- -- -- Cross-currency swaps........... 16.9 12.9 41 28 14 2 7 8 CREDIT DERIVATIVE PRODUCTS..... 30.8 29.2 2 6 5 13 13 61 </TABLE> - ------------------------ (1) Includes third-party and intercompany contracts. END-USER INTEREST RATE SWAPS AND NET PURCHASED OPTIONS AS OF DECEMBER 31, 2000 <TABLE> <CAPTION> REMAINING CONTRACTS OUTSTANDING-- NOTIONAL PRINCIPAL AMOUNTS --------------------------------------------------------------- In Billions of Dollars at Year-End 2000 2001 2002 2003 2004 2005 -------- -------- -------- -------- -------- -------- <S> <C> <C> <C> <C> <C> <C> Receive fixed swaps............................... $62.2 $53.6 $43.8 $32.6 $25.4 $17.9 Weighted-average fixed rate....................... 6.3% 6.3% 6.3% 6.4% 6.6% 6.6% Pay fixed swaps................................... 18.5 15.0 9.5 7.2 5.8 3.5 Weighted-average fixed rate....................... 5.1% 4.8% 4.3% 4.4% 4.7% 6.7% Basis swaps....................................... 21.5 11.2 8.8 7.8 7.0 4.6 Purchased caps (including collars)................ 1.5 1.5 -- -- -- -- Weighted-average cap rate purchased............... 8.9% 8.9% --% --% --% --% Purchased floors.................................. 9.8 7.7 6.4 6.4 6.4 0.5 Weighted-average floor rate purchased............. 5.1% 5.3% 6.1% 6.1% 6.1% 6.1% Written caps related to other purchased caps(1)... 2.3 2.1 1.7 1.4 1.4 0.5 Weighted-average cap rate written................. 9.8% 9.8% 10.6% 10.7% 10.7% 10.8% ----- ----- ----- ----- ----- ----- Three-month forward LIBOR rates(2)................ 6.4% 5.5% 5.9% 6.0% 6.2% 6.4% ===== ===== ===== ===== ===== ===== </TABLE> - ------------------------ (1) Includes written options related to purchased options embedded in other financial instruments. (2) Represents the implied forward yield curve for three-month LIBOR as of December 31, 2000, provided for reference. The tables above provide data on the notional principal amounts and maturities of end-user (non-trading) derivatives, along with additional data on end-user interest rate swaps and net purchased option positions at year-end 2000 with three-month LIBOR forward rates included for reference. The 136
CITIGROUP INC. AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED) 23. TRADING SECURITIES, COMMODITIES, DERIVATIVES, AND RELATED RISKS (CONTINUED) tables are intended to provide an overview of these components of the end-user portfolio, but should be viewed only in the context of Citigroup's related assets and liabilities. Contract maturities are related to the underlying risk management strategy. The majority of derivative positions used in Citigroup's asset and liability management activities are established via intercompany transactions with independently managed Citigroup dealer units, with the dealer acting as a conduit to the marketplace. Citigroup's utilization of these instruments is modified from time to time in response to changing market conditions as well as changes in the characteristics and mix of the related assets and liabilities. In this connection, during 2000 interest rate futures, swaps, and options with a notional principal amount of $60.2 billion were closed out which resulted in a net deferred gain of approximately $73 million. Total unamortized net deferred gains, including those from prior year close-outs, were approximately $127 million at December 31, 2000, which will be amortized into earnings over the remaining life of the original contracts (approximately 20% in 2001, 18% in 2002, and 62% in subsequent years), consistent with the risk management strategy. 24. CONCENTRATIONS OF CREDIT RISK Concentrations of credit risk exist when changes in economic, industry or geographic factors similarly affect groups of counterparties whose aggregate credit exposure is material in relation to Citigroup's total credit exposure. Although Citigroup's portfolio of financial instruments is broadly diversified along industry, product, and geographic lines, material transactions are completed with other financial institutions, particularly in the securities trading, derivative, and foreign exchange businesses. 25. FAIR VALUE OF FINANCIAL INSTRUMENTS ESTIMATED FAIR VALUE OF FINANCIAL INSTRUMENTS The table below presents the carrying value and fair value of Citigroup's financial instruments, as defined in accordance with applicable requirements. Accordingly, as required, the disclosures exclude leases, affiliate investments, and pension and benefit obligations, and contractholder funds amounts exclude certain insurance contracts. Also as required, the disclosures exclude the effect of taxes, do not reflect any premium or discount that could result from offering for sale at one time the entire holdings of a particular instrument, the excess fair value associated with deposits with no fixed maturity, as well as other expenses that would be incurred in a market transaction. In addition, the table excludes the values of nonfinancial assets and liabilities, as well as a wide range of franchise, relationship, and intangible values, which are integral to a full assessment of Citigroup's financial position and the value of its net assets. The data represents management's best estimates based on a range of methodologies and assumptions. The carrying value of short-term financial instruments as well as receivables and payables arising in the ordinary course of business, approximates fair value because of the relatively short period of time between their origination and expected realization. Quoted market prices are used for most investments, for loans where available, and for both trading and end-user derivative and foreign exchange contracts, as well as for liabilities, such as long-term debt, with quoted prices. For performing loans where no quoted market prices are available, contractual cash flows are discounted at quoted secondary market rates or estimated market rates if available. Otherwise, sales of comparable loan 137
CITIGROUP INC. AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED) 25. FAIR VALUE OF FINANCIAL INSTRUMENTS (CONTINUED) portfolios or current market origination rates for loans with similar terms and risk characteristics are used. For loans with doubt as to collectibility, expected cash flows are discounted using an appropriate rate considering the time of collection and a premium for the uncertainty of the flows. The value of collateral is also considered. For liabilities such as long-term debt without quoted market prices, market borrowing rates of interest are used to discount contractual cash flows. Fair values of credit card securitizations reflect the various components of these transactions but principally arise from fixed rates payable to certificate holders. Under the applicable requirements, the estimated fair value of deposits with no fixed maturity in the following table excludes the premium values available in the market for such deposits, and the estimated value is shown in the table as being equal to the carrying value. <TABLE> <CAPTION> 2000 1999 --------------------- --------------------- CARRYING ESTIMATED CARRYING ESTIMATED In Billions of Dollars at Year-End VALUE FAIR VALUE VALUE FAIR VALUE -------- ---------- -------- ---------- <S> <C> <C> <C> <C> ASSETS AND RELATED INSTRUMENTS Investments............................................ $120.1 $120.1 $116.1 $116.1 Federal funds sold and securities borrowed or purchased under agreements to resell........................... 105.9 105.9 112.7 112.7 Trading account assets................................. 132.5 132.5 107.1 107.1 Loans(1)............................................... 338.1 354.6 293.9 307.4 Related derivatives.................................. 0.2 0.2 0.2 (0.3) Other financial assets(2).............................. 137.7 137.7 121.0 121.0 Credit card securitizations.......................... -- 0.3 -- 0.8 Related derivatives.................................. 0.3 0.4 -- (0.2) LIABILITIES AND RELATED INSTRUMENTS Deposits............................................... 300.6 300.7 261.6 261.3 Related derivatives.................................. -- (0.1) (0.2) -- Federal funds purchased and securities loaned or sold under agreements to repurchase....................... 110.6 110.6 92.6 92.6 Trading account liabilities............................ 85.1 85.1 90.5 90.5 Contractholder funds With defined maturities.............................. 6.7 6.7 5.0 4.7 Without defined maturities........................... 10.1 9.9 10.1 10.3 Long-term debt......................................... 111.8 112.3 88.5 88.1 Related derivatives.................................. (0.1) (0.1) (0.1) 0.5 Other financial liabilities(3)......................... 148.3 148.1 130.0 129.9 Related derivatives.................................. -- (0.1) -- -- </TABLE> - ------------------------ (1) The carrying value of loans is net of the allowance for credit losses and also excludes $20.0 billion and $12.1 billion of lease finance receivables in 2000 and 1999, respectively. (2) Includes cash and due from banks, deposits at interest with banks, brokerage receivables, reinsurance recoverables and separate and variable accounts for which the carrying value is a 138
CITIGROUP INC. AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED) 25. FAIR VALUE OF FINANCIAL INSTRUMENTS (CONTINUED) reasonable estimate of fair value, and the carrying value and estimated fair value of financial instruments included in other assets on the Consolidated Statement of Financial Position. (3) Includes brokerage payables, separate and variable accounts, investment banking and brokerage borrowings, short-term borrowings, for which the carrying value is a reasonable estimate of fair value, and the carrying value and estimated fair value of financial instruments included in other liabilities on the Consolidated Statement of Financial Position. Fair values vary from period to period based on changes in a wide range of factors, including interest rates, credit quality, and market perceptions of value, and as existing assets and liabilities run off and new items are entered into. The estimated fair values of loans reflect changes in credit status since the loans were made, changes in interest rates in the case of fixed-rate loans, and premium values at origination of certain loans. The estimated fair values of Citigroup's loans, in the aggregate, exceeded carrying values (reduced by the allowance for credit losses) by $16.5 billion at year-end 2000 and $13.5 billion in 1999. Within these totals, estimated fair values exceeded carrying values for consumer loans net of the allowance by $12.9 billion, an increase of $2.8 billion from year-end 1999, and for commercial loans net of the allowance by $3.6 billion, which was an increase of $0.2 billion from year-end 1999. The increase in estimated fair values in excess of carrying values of consumer loans is primarily due to the lower interest rate environment. The estimated fair value of credit card securitizations was $0.3 billion more than their carrying value at December 31, 2000, which is $0.5 billion less than December 31, 1999, when the carrying value exceeded the estimated fair value by $0.8 billion. This decrease is due to the effects of a lower interest rate environment on the fixed-rate investor certificates. For all derivative and foreign exchange contracts in the previous tables, the gross difference between the fair value and carrying amount as of December 31, 2000 and1999 was $0.8 billion and $0.4 billion for contracts whose fair value exceeds carrying value, and $0.5 billion and $1.9 billion at December 31, 2000 and 1999, respectively, for contracts whose carrying value exceeds fair value. 139
CITIGROUP INC. AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED) 26. PLEDGED ASSETS, COLLATERAL AND COMMITMENTS PLEDGED ASSETS At December 31, 2000, the approximate market values of securities sold under agreements to repurchase and other assets pledged, excluding the impact of FIN 39 and FIN 41 were as follows: <TABLE> <CAPTION> In Millions of Dollars 2000 1999 -------- -------- <S> <C> <C> For securities sold under agreements to repurchase.......... $161,909 $141,298 As collateral for securities borrowed of approximately equivalent value.......................................... 41,149 69,329 As collateral on bank loans................................. 225 3,975 To clearing organizations or segregated under securities laws and regulations...................................... 10,427 8,696 For securities loaned....................................... 21,226 11,995 Other....................................................... 41,520 29,361 -------- -------- $276,456 $264,654 ======== ======== </TABLE> In addition, included in cash and due from banks at December 31, 2000 and 1999 is $2.698 billion and $2.421 billion, respectively, of cash segregated under federal and other brokerage regulations or deposited with clearing organizations. At December 31, 2000 the Company had $1.4 billion of outstanding letters of credit from banks to satisfy various collateral and margin requirements. COLLATERAL At December 31, 2000, the approximate market value of collateral received by the Company that may be sold or repledged by the Company, excluding amounts netted in accordance with FIN 39 and FIN 41, was $236.6 billion. This collateral was received in connection with resale agreements, securities borrowings and loans, derivative transactions, and margined broker loans. At December 31, 2000, a substantial portion of the collateral received by the Company had been sold or repledged in connection with repurchase agreements, securities sold, not yet purchased, securities borrowings and loans, pledges to clearing organizations, segregation requirements under securities laws and regulations, derivative transactions, and bank loans. In addition, at December 31, 2000, the Company had pledged $47.5 billion of collateral that may not be sold or repledged by the secured parties. LEASE COMMITMENTS Rental expense (principally for offices and computer equipment) was $1.502 billion, $1.386 billion and $1.203 billion for the years ended December 31, 2000, 1999 and 1998, respectively. 140
CITIGROUP INC. AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED) 26. PLEDGED ASSETS, COLLATERAL AND COMMITMENTS (CONTINUED) Future minimum annual rentals under noncancellable leases, net of sublease income, are as follows: <TABLE> <CAPTION> In Millions of Dollars at Year-End <S> <C> 2001........................................................ $1,135 2002........................................................ 986 2003........................................................ 807 2004........................................................ 631 2005........................................................ 633 Thereafter.................................................. 2,645 ------ $6,837 ====== </TABLE> The Company and certain of Salomon Smith Barney's subsidiaries together have an option to purchase the buildings presently leased for Salomon Smith Barney's executive offices and New York City operations at the expiration of the lease term. LOAN COMMITMENTS <TABLE> <CAPTION> In Billions of Dollars at Year-end 2000 1999 -------- -------- <S> <C> <C> Unused commercial commitments to make or purchase loans, to purchase third-party receivables, and to provide note issuance or revolving underwriting facilities............. $201.2 $176.3 Unused credit card and other consumer revolving commitments............................................... $353.5 $311.4 </TABLE> The majority of unused commitments are contingent upon customers maintaining specific credit standards. Commercial commitments generally have floating interest rates and fixed expiration dates and may require payment of fees. Such fees (net of certain direct costs) are deferred and, upon exercise of the commitment, amortized over the life of the loan or, if exercise is deemed remote, amortized over the commitment period. The table does not include commercial letters of credit issued on behalf of customers and collateralized by the underlying shipment of goods which totaled $6.8 billion and $5.3 billion at December 31, 2000 and 1999. 141
CITIGROUP INC. AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED) 26. PLEDGED ASSETS, COLLATERAL AND COMMITMENTS (CONTINUED) LOANS SOLD WITH CREDIT ENHANCEMENTS <TABLE> <CAPTION> AMOUNTS ------------------- In Billions of Dollars at Year-end 2000 1999 FORM OF CREDIT ENHANCEMENT -------- -------- -------------------------------------- <S> <C> <C> <C> Residential mortgages and other loans sold with recourse(1)............... $10.4 $9.7 2000: Recourse obligation of $5.1, and put options as described below. 1999: Recourse obligation of $3.4, and put options as described below. GNMA sales/servicing agreements(2).... 16.1 19.3 Secondary recourse obligation Securitized credit card receivables... 57.0 58.4 Includes net revenue over the life of the transaction. Also includes put options as described below for 1999, and other recourse obligations of $1.0 in 2000 and $2.0 in 1999. </TABLE> - ------------------------ (1) Residential mortgages represent 71% of amounts in 2000 and 91% in 1999. (2) Government National Mortgage Association sales/servicing agreements covering securitized residential mortgages. Citigroup and its subsidiaries are obligated under various credit enhancements related to certain sales of loans or sales of participations in pools of loans, as summarized above. Net revenue on securitized credit card receivables is collected over the life of each sale transaction. The net revenue is based upon the sum of finance charges and fees received from cardholders and interchange revenue earned on cardholder transactions, less the sum of the yield paid to investors, credit losses, transaction costs, and a contractual servicing fee, which is also retained by certain Citigroup subsidiaries as servicers. As specified in certain of the sale agreements, the net revenue collected each month is accumulated up to a predetermined maximum amount, and is available over the remaining term of that transaction to make payments of yield, fees, and transaction costs in the event that net cash flows from the receivables are not sufficient. When the predetermined amount is reached, net revenue is passed directly to the Citigroup subsidiary that sold the receivables. The amount contained in these accounts is included in other assets and was $66 million at December 31, 2000 and $60 million at December 31, 1999. Net revenue from securitized credit card receivables included in other revenue was $2.4 billion, $2.1 billion, and $1.5 billion for the years ended December 31, 2000, 1999, and 1998, respectively. Various put options were written during 2000 and 1999 which require Citigroup to purchase, upon request of the holders, securities issued in certain securitization transactions in order to broaden the investor base and improve execution in connection with the securitizations. These put options at year end 2000 include: a put option, exercisable in October of each year beginning in October 2000, with respect to an aggregate of up to approximately $2 billion principal amount of certificates backed by manufactured housing contract receivables, of which approximately $133 million was exercised in 2000; a put option, exercisable at any time after June 15, 2000, with respect to an aggregate of up to 142
CITIGROUP INC. AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED) 26. PLEDGED ASSETS, COLLATERAL AND COMMITMENTS (CONTINUED) approximately $1 billion principal amount of notes secured by home equity loan receivables only to the extent the securitization trust cannot meet its obligation under a separate put option by the trust which is exercisable at any time after March 15, 2000, and a put option, orginally exercisable at any time after September 15, 2000, the exercise of which has been extended to April 12, 2001, with respect to an aggregate of up to approximately $1.25 billion of notes secured by home equity loan receivables only to the extent the notes are not purchased by the securitization trust pursuant to a separate put option issued by the trust and exercisable at any time after June 15, 2000. In each case, if exercised, the Company will be obligated to purchase the certificates or notes at par plus accrued interest. The aggregate amortized amount of these options was approximately $3.4 billion at December 31, 2000. Two option contracts from 1999 that were exercised in 2000 were the following: a put option, exercisable any time after February 17, 2000, with respect to an aggregate of up to $500 million principal amounts of certificates backed by credit card receivables; and a put option, exercisable at any time after June 15, 2000, with respect to an aggregate of up to approximately $1 billion of notes secured by home equity loan receivables only to the extent the notes are not purchased by the securitization trust pursuant to a separate put option issued by the trust and exercisable at any time after March 15, 2000. The Company has recorded liabilities totaling approximately $17 million at December 31, 2000 and $23 million at December 31, 1999 in connection with these options. Subsequent to their initial issuance, such options are marked to market with the fluctuation being reflected in the statement of earnings. FINANCIAL GUARANTEES Financial guarantees are used in various transactions to enhance the credit standing of Citigroup customers. They represent irrevocable assurances, subject to the satisfaction of certain conditions, that Citigroup will make payment in the event that the customer fails to fulfill its obligations to third parties. Citicorp issues financial standby letters of credit which are obligations to pay a third-party beneficiary when a customer fails to repay an outstanding loan or debt instrument, such as assuring payments by a foreign reinsurer to a U.S. insurer, to act as a substitute for an escrow account, to provide a payment mechanism for a customer's third-party obligations, and to assure payment of specified financial obligations of a customer. Fees are recognized ratably over the term of the standby letter of credit. The following table summarizes financial standby letters of credit issued by Citicorp. The table does not include securities lending indemnifications issued to customers, which are fully 143
CITIGROUP INC. AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED) 26. PLEDGED ASSETS, COLLATERAL AND COMMITMENTS (CONTINUED) collateralized and totaled $12.5 billion at December 31, 2000 and $23.0 billion at December 31, 1999, and performance standby letters of credit. <TABLE> <CAPTION> 2000 1999 ------------------------------------------- ------------ EXPIRE WITHIN EXPIRE AFTER TOTAL AMOUNT TOTAL AMOUNT In Billions of Dollars at Year-End 1 YEAR 1 YEAR OUTSTANDING OUTSTANDING ------------- ------------ ------------ ------------ <S> <C> <C> <C> <C> Insurance, surety............................ $ 1.9 $ 6.1 $ 8.0 $ 7.0 Options, purchased securities, and escrow.... 0.3 -- 0.3 0.7 Clean payment................................ 3.4 1.1 4.5 3.3 Backstop state, county, and municipal securities................................. -- 0.1 0.1 0.3 Other debt related........................... 6.7 3.5 10.2 8.8 ----- ----- ----- ----- TOTAL(1)..................................... $12.3 $10.8 $23.1 $20.1 ===== ===== ===== ===== </TABLE> - ------------------------ (1) Total is net of cash collateral of $2.0 billion in 2000 and $2.6 billion in 1999. Collateral other than cash covered 24% of the total in 2000 and 21% in 1999. OTHER COMMITMENTS Salomon Smith Barney and a principal broker-dealer subsidiary have each provided a portion of a residual value guarantee in the amount of $586 million in connection with the lease of the buildings occupied by Salomon Smith Barney's executive offices and New York operations. The Company makes commitments to fund partnership investments and transfers receivables to third parties with recourse from time to time. The off-balance sheet risks of these financial instruments were not significant at December 31, 2000 or 1999. 27. CONTINGENCIES In the ordinary course of business, Citigroup and/or its subsidiaries are defendants or co-defendants in various litigation matters, other than environmental and asbestos property and casualty insurance claims as discussed in Note 13. Although there can be no assurances, the Company believes, based on information currently available, that the ultimate resolution of these legal proceedings would not be likely to have a material adverse effect on its results of operations, financial condition, or liquidity. 144
CITIGROUP INC. AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED) 28. CITIGROUP (PARENT COMPANY ONLY) CONDENSED STATEMENT OF INCOME <TABLE> <CAPTION> YEAR ENDED DECEMBER 31, ------------------------------ In Millions of Dollars 2000 1999 1998 -------- -------- -------- <S> <C> <C> <C> REVENUES.................................................... $ 133 $ 80 $ 29 ------- ------- ------ Expenses: Interest.................................................. 346 389 218 Other..................................................... 255 133 158 ------- ------- ------ Total....................................................... 601 522 376 ------- ------- ------ PRE-TAX LOSS................................................ (468) (442) (347) Income tax benefit.......................................... 167 156 130 ------- ------- ------ LOSS BEFORE EQUITY IN NET INCOME OF SUBSIDIARIES............ (301) (286) (217) Equity in net income of subsidiaries........................ 13,820 11,529 7,167 ------- ------- ------ NET INCOME.................................................. $13,519 $11,243 $6,950 ======= ======= ====== </TABLE> 145
CITIGROUP INC. AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED) 28. CITIGROUP (PARENT COMPANY ONLY) (CONTINUED) CONDENSED STATEMENT OF FINANCIAL POSITION <TABLE> <CAPTION> DECEMBER 31, ------------------- In Millions of Dollars 2000 1999 -------- -------- <S> <C> <C> ASSETS Cash........................................................ $ 85 $ 855 Investments................................................. -- 1,763 Investment in and advances to: Bank and bank holding company subsidiaries................ 56,973 37,710 Other subsidiaries........................................ 30,431 26,013 Cost of acquired businesses in excess of net assets......... 381 395 Other....................................................... 508 205 ------- ------- TOTAL....................................................... $88,378 $66,941 ======= ======= LIABILITIES Advances from and payables to subsidiaries.................. $ 270 $ 887 Commercial paper............................................ 496 -- Junior subordinated debentures, held by subsidiary trusts... 2,367 2,367 Long-term debt.............................................. 18,197 4,181 Other liabilities........................................... 616 990 Redeemable preferred stock, held by subsidiary.............. 226 226 STOCKHOLDERS' EQUITY Preferred stock ($1.00 par value; authorized shares: 30 million), at aggregate liquidation value.................. 1,745 1,895 Common stock ($.01 par value; authorized shares: 10 billion; issued shares: 2000--5,351,143,583 SHARES and 1999--5,350,977,319 shares)............................... 54 54 Additional paid-in capital.................................. 16,504 15,307 Retained earnings........................................... 58,862 47,997 Treasury stock, at cost (2000--328,921,189 SHARES; 1999--326,918,585 shares)................................. (10,213) (7,662) Accumulated other changes in equity from nonowner sources... 123 1,155 Unearned compensation....................................... (869) (456) ------- ------- STOCKHOLDERS' EQUITY........................................ 66,206 58,290 ------- ------- TOTAL....................................................... $88,378 $66,941 ======= ======= </TABLE> 146
CITIGROUP INC. AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED) 28. CITIGROUP (PARENT COMPANY ONLY) (CONTINUED) CONDENSED STATEMENT OF CASH FLOWS <TABLE> <CAPTION> YEAR ENDED DECEMBER 31, ------------------------------ In Millions of Dollars 2000 1999 1998 -------- -------- -------- <S> <C> <C> <C> CASH FLOWS FROM OPERATING ACTIVITIES Net income.................................................. $13,519 $11,243 $6,950 Adjustments to reconcile net income to cash provided by operating activities: Equity in net income of subsidiaries...................... (13,820) (11,529) (7,167) Dividends received from: Bank and bank holding company subsidiaries.............. 1,255 4,791 158 Other subsidiaries...................................... 1,535 2,285 2,980 Other, net................................................ (240) 2,046 (179) ------- ------- ------ NET CASH PROVIDED BY OPERATING ACTIVITIES................... 2,249 8,836 2,742 ------- ------- ------ CASH FLOWS FROM INVESTING ACTIVITIES Capital contributions to subsidiaries....................... (5,800) (321) (1,276) Change in investments....................................... 1,763 (425) (1,130) Advances to subsidiaries, net............................... (6,523) (1,206) -- ------- ------- ------ NET CASH USED IN INVESTING ACTIVITIES....................... (10,560) (1,952) (2,406) ------- ------- ------ CASH FLOWS FROM FINANCING ACTIVITIES (Repayment of) proceeds from advances from subsidiaries, net....................................................... (617) (1,197) 2,049 Dividends paid.............................................. (2,654) (2,139) (1,988) Issuance of common stock.................................... 958 758 1,685 Redemption of preferred stock............................... (150) (388) (1,040) Stock tendered for payment of withholding taxes............. (593) (496) (520) Treasury stock acquired..................................... (4,066) (3,954) (3,139) Issuance of long-term debt.................................. 14,817 1,859 1,000 Issuance of junior subordinated debentures.................. -- 619 722 Payments and redemptions of long-term debt.................. (650) (100) (250) Change in short-term borrowings............................. 496 (991) 991 Other, net.................................................. -- -- 154 ------- ------- ------ NET CASH PROVIDED BY (USED IN) FINANCING ACTIVITIES......... 7,541 (6,029) (336) ------- ------- ------ Change in cash.............................................. (770) 855 -- Cash at beginning of period................................. 855 -- -- ------- ------- ------ Cash at end of period....................................... $ 85 $ 855 $ -- ======= ======= ====== SUPPLEMENTAL DISCLOSURE OF CASH FLOW INFORMATION Cash paid during the period for interest.................... $ 510 $ 400 $ 202 Cash received during the period for taxes................... 1,066 1,251 712 ======= ======= ====== </TABLE> 147
CITIGROUP INC. AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED) 29. SELECTED QUARTERLY FINANCIAL DATA (UNAUDITED) <TABLE> <CAPTION> 2000 1999 In Millions of Dollars ----------------------------------------- ----------------------------------------- Except Per Share Amounts FOURTH THIRD SECOND FIRST FOURTH THIRD SECOND FIRST -------- -------- -------- -------- -------- -------- -------- -------- <S> <C> <C> <C> <C> <C> <C> <C> <C> TOTAL REVENUES......................... $29,328 $28,624 $27,059 $26,815 $24,195 $23,166 $23,498 $23,537 Total revenues, net of interest expense.............................. 19,003 18,835 18,220 19,130 17,022 16,097 16,477 16,126 Total benefits, claims, and credit losses............................... 4,288 3,760 3,753 3,685 3,529 3,450 3,508 3,393 Total operating expenses............... 10,282 9,620 9,290 9,367 8,679 8,209 8,503 8,300 INCOME BEFORE INCOME TAXES, MINORITY INTEREST, AND CUMULATIVE EFFECT OF ACCOUNTING CHANGES................... 4,433 5,455 5,177 6,078 4,814 4,438 4,466 4,433 Provision for income taxes............. 1,582 1,958 1,818 2,167 1,729 1,593 1,610 1,598 Minority interest, net of income taxes................................ 11 13 20 55 70 56 65 60 INCOME BEFORE CUMULATIVE EFFECT OF ACCOUNTING CHANGES................... 2,840 3,484 3,339 3,856 3,015 2,789 2,791 2,775 Cumulative effect of accounting changes(1)........................... -- -- -- -- -- -- -- (127) ------- ------- ------- ------- ------- ------- ------- ------- NET INCOME............................. $ 2,840 $ 3,484 $ 3,339 $ 3,856 $ 3,015 $ 2,789 $ 2,791 $ 2,648 ------- ------- ------- ------- ------- ------- ------- ------- BASIC EARNINGS PER SHARE............... $ 0.57 $ 0.69 $ 0.67 $ 0.77 $ 0.60 $ 0.55 $ 0.55 $ 0.52 ------- ------- ------- ------- ------- ------- ------- ------- DILUTED EARNINGS PER SHARE............. $ 0.55 $ 0.67 $ 0.65 $ 0.75 $ 0.58 $ 0.54 $ 0.54 $ 0.51 ------- ------- ------- ------- ------- ------- ------- ------- COMMON STOCK PRICE PER SHARE High................................... $57.125 $59.125 $50.156 $46.781 $43.688 $38.204 $38.813 $33.223 Low.................................... 44.500 45.422 42.000 35.813 31.547 30.891 30.094 24.504 Close.................................. 51.063 54.063 45.188 44.906 41.766 33.000 35.625 31.934 Dividends per share of common stock(2)............................. 0.140 0.140 0.120 0.120 0.105 0.105 0.105 0.090 </TABLE> - -------------------------- (1) Accounting changes include the 1999 first quarter adoption of Statement of Position (SOP) 97-3, "Accounting by Insurance and Other Enterprises for Insurance-Related Assessments" of ($135) million; SOP 98-7, "Deposit Accounting: Accounting for Insurance and Reinsurance Contracts That Do Not Transfer Insurance Risk" of $23 million; and SOP 98-5, "Reporting on the Costs of Start-Up Activities" of ($15) million. See Note 1. (2) Amounts represent Citigroup's historical dividends per common share. The selected quarterly financial data gives retroactive effect to the acquisition of Associates in a transaction accounted for as a pooling of interests. The pooling of interests method of accounting requires the restatement of all periods presented as if the companies had always been combined. Certain reclassifications and adjustments have been recorded to conform the accounting policies and presentations of Citigroup and Associates (see Note 2). Due to changes in the number of average shares outstanding, quarterly earnings per share of common stock may not add to the totals for the years. Per share data have been adjusted to give effect to the four-for-three split in Citigroup's common stock as discussed in Note 1. The fourth, third, and second quarters of 2000 include $381 million after-tax ($538 million pretax), $15 million after-tax ($24 million pretax), and $11 million after-tax ($17 million pretax), respectively, of restructuring charges, and in the 2000 fourth and third quarters, include $119 million after-tax ($143 million pretax) and $22 million after-tax ($34 million pretax), respectively, of merger-related costs. The fourth quarter of 2000 includes a $135 million after-tax ($210 million pretax) transportation loss provision related to Associates' truck loan and leasing portfolio. The first quarter of 2000 includes a $71 million after-tax ($112 million pretax) charge related to the discontinuation of Associates Housing Finance loan originations. The fourth, third, and first quarters of 1999 include $51 million after-tax ($82 million pretax), $31 million after-tax ($49 million pretax), and $22 million after-tax ($35 million pretax), respectively, of restructuring charges. The fourth and second quarters of 2000 148
CITIGROUP INC. AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED) 29. SELECTED QUARTERLY FINANCIAL DATA (UNAUDITED) (CONTINUED) include credits for reductions of prior charges of $13 million after-tax ($22 million pretax) and $28 million after-tax ($43 million pretax), respectively. The fourth, third, and first quarters of 1999 include credits for reductions of prior charges of $76 million after-tax ($122 million pretax), $41 million after-tax ($68 million pretax), and $125 million after-tax ($211 million pretax), respectively. The 2000 fourth, third, second, and first quarters also include $4 million after-tax ($7 million pretax), $8 million after-tax ($12 million pretax), $19 million after-tax ($29 million pretax), and $12 million after-tax ($20 million pretax), respectively, of restructuring-related accelerated depreciation. The 1999 fourth, third, second, and first quarters also include $8 million after-tax ($13 million pretax), $25 million after-tax ($41 million pretax), $29 million after-tax ($47 million pretax), and $51 million after-tax ($81 million pretax), respectively, of restructuring-related accelerated depreciation. 149
FINANCIAL DATA SUPPLEMENT AVERAGE BALANCES AND INTEREST RATES, TAXABLE EQUIVALENT BASIS(1)(2)(3) <TABLE> <CAPTION> AVERAGE VOLUME INTEREST REVENUE % AVERAGE RATE ------------------------------ ------------------------------ ------------------------------ In Millions of Dollars 2000 1999 1998 2000 1999 1998 2000 1999 1998 -------- -------- -------- -------- -------- -------- -------- -------- -------- <S> <C> <C> <C> <C> <C> <C> <C> <C> <C> ASSETS CASH AND DUE FROM BANKS In U.S. offices................ $ 3,338 $ 3,038 $ 3,199 $ -- $ -- $ 1 -- -- 0.03 In offices outside the U.S.(4)...................... 1,540 917 1,087 30 13 21 1.95 1.42 1.93 -------- -------- -------- ------- ------- ------- Total.......................... 4,878 3,955 4,286 30 13 22 0.62 0.33 0.51 -------- -------- -------- ------- ------- ------- DEPOSITS AT INTEREST WITH BANKS(4)..................... 13,232 12,384 14,393 1,226 992 1,070 9.27 8.01 7.43 -------- -------- -------- ------- ------- ------- FEDERAL FUNDS SOLD AND SECURITIES BORROWED OR PURCHASED UNDER AGREEMENTS TO RESELL In U.S. offices................ 96,807 82,778 78,096 8,654 6,120 6,087 8.94 7.39 7.79 In offices outside the U.S.(4)...................... 30,615 32,635 57,122 1,817 1,549 2,511 5.93 4.75 4.40 -------- -------- -------- ------- ------- ------- Total.......................... 127,422 115,413 135,218 10,471 7,669 8,598 8.22 6.64 6.36 -------- -------- -------- ------- ------- ------- BROKERAGE RECEIVABLES In U.S. offices................ 26,029 17,002 13,416 2,135 1,212 1,087 8.20 7.13 8.10 In offices outside the U.S.(4)...................... 3,271 3,416 7,782 320 188 200 9.78 5.50 2.57 -------- -------- -------- ------- ------- ------- Total.......................... 29,300 20,418 21,198 2,455 1,400 1,287 8.38 6.86 6.07 -------- -------- -------- ------- ------- ------- TRADING ACCOUNT ASSETS(5)(6) In U.S. offices................ 63,723 58,052 70,349 3,181 2,245 3,171 4.99 3.87 4.51 In offices outside the U.S.(4)...................... 36,571 30,948 57,313 1,340 989 1,624 3.66 3.20 2.83 -------- -------- -------- ------- ------- ------- Total.......................... 100,294 89,000 127,662 4,521 3,234 4,795 4.51 3.63 3.76 -------- -------- -------- ------- ------- ------- INVESTMENTS In U.S. offices Taxable.................... 74,375 67,924 62,503 4,916 4,327 3,781 6.61 6.37 6.05 Exempt from U.S. income tax...................... 14,747 14,297 13,145 1,057 1,000 949 7.17 6.99 7.22 In offices outside the U.S.(4).................... 29,623 28,262 24,894 2,169 2,907 2,446 7.32 10.29 9.83 -------- -------- -------- ------- ------- ------- Total.......................... 118,745 110,483 100,542 8,142 8,234 7,176 6.86 7.45 7.14 -------- -------- -------- ------- ------- ------- LOANS (NET OF UNEARNED INCOME)(7) Consumer loans In U.S. offices.............. 134,624 113,773 102,959 15,797 13,321 12,480 11.73 11.71 12.12 In offices outside the U.S.(4).................... 75,200 68,984 57,706 9,708 8,984 7,873 12.91 13.02 13.64 -------- -------- -------- ------- ------- ------- Total consumer loans........... 209,824 182,757 160,665 25,505 22,305 20,353 12.16 12.20 12.67 -------- -------- -------- ------- ------- ------- Commercial loans In U.S. offices Commercial and industrial............... 32,472 27,443 23,384 2,649 2,325 2,195 8.16 8.47 9.39 Lease financing............ 11,792 8,758 8,120 1,045 682 652 8.86 7.79 8.03 Mortgage and real estate... 3,598 6,518 8,704 361 730 869 10.03 11.20 9.98 In offices outside the U.S.(4).................... 79,812 73,565 65,762 7,821 6,980 7,079 9.80 9.49 10.76 -------- -------- -------- ------- ------- ------- Total commercial loans......... 127,674 116,284 105,970 11,876 10,717 10,795 9.30 9.22 10.19 -------- -------- -------- ------- ------- ------- TOTAL LOANS.................... 337,498 299,041 266,635 37,381 33,022 31,148 11.08 11.04 11.68 -------- -------- -------- ------- ------- ------- OTHER INTEREST-EARNING ASSETS....................... 9,745 7,740 7,143 1,027 753 770 10.54 9.73 10.78 -------- -------- -------- ------- ------- ------- TOTAL INTEREST-EARNING ASSETS....................... 741,114 658,434 677,077 $65,253 $55,317 $54,866 8.80 8.40 8.10 ======= ======= ======= ===== ===== ===== Non-interest-earning assets(5).................... 135,538 118,641 114,279 -------- -------- -------- TOTAL ASSETS................... $876,652 $777,075 $791,356 ======== ======== ======== </TABLE> - ------------------------------ (1) The taxable equivalent adjustment is based on the U.S. federal statutory tax rate of 35%. (2) Interest rates and amounts include the effects of risk management activities associated with the respective asset and liability categories. See Note 23 of Notes to Consolidated Financial Statements. (3) Monthly or quarterly averages have been used by certain subsidiaries, where daily averages are unavailable. (4) Average rates reflect prevailing local interest rates including inflationary effects and monetary correction in certain countries. (5) The fair value carrying amounts of derivative and foreign exchange contracts are reported in non-interest earning assets and other non-interest bearing liabilities. (6) Interest expense on trading account liabilities of Salomon Smith Barney is reported as a reduction of interest revenue. (7) Includes cash-basis loans. 150
AVERAGE BALANCES AND INTEREST RATES, TAXABLE EQUIVALENT BASIS(1)(2)(3) (CONTINUED) <TABLE> <CAPTION> AVERAGE VOLUME INTEREST EXPENSE % AVERAGE RATE ------------------------------ ------------------------------ ------------------------------ In Millions of Dollars 2000 1999 1998 2000 1999 1998 2000 1999 1998 -------- -------- -------- -------- -------- -------- -------- -------- -------- <S> <C> <C> <C> <C> <C> <C> <C> <C> <C> LIABILITIES DEPOSITS In U.S. offices Savings deposits (7)......... $ 36,252 $ 33,422 $ 31,179 $ 1,206 $ 928 $ 919 3.33 2.78 2.95 Other time deposits.......... 16,050 12,105 11,891 712 301 547 4.44 2.49 4.60 In offices outside the U.S.(4)...................... 196,368 169,138 149,982 11,172 9,519 10,229 5.69 5.63 6.82 -------- -------- -------- ------- ------- ------- Total.......................... 248,670 214,665 193,052 13,090 10,748 11,695 5.26 5.01 6.06 -------- -------- -------- ------- ------- ------- FEDERAL FUNDS PURCHASED AND SECURITIES LOANED OR SOLD UNDER AGREEMENTS TO REPURCHASE In U.S. offices................ 106,655 79,669 83,094 9,515 6,172 6,612 8.92 7.75 7.96 In offices outside the U.S.(4)...................... 27,435 30,326 51,649 2,351 1,778 2,860 8.57 5.86 5.54 -------- -------- -------- ------- ------- ------- Total.......................... 134,090 109,995 134,743 11,866 7,950 9,472 8.85 7.23 7.03 -------- -------- -------- ------- ------- ------- BROKERAGE PAYABLES In U.S. offices................ 18,275 11,852 9,852 282 219 264 1.54 1.85 2.68 In offices outside the U.S.(4)...................... 1,926 1,675 9,809 25 3 24 1.30 0.18 0.24 -------- -------- -------- ------- ------- ------- Total.......................... 20,201 13,527 19,661 307 222 288 1.52 1.64 1.46 -------- -------- -------- ------- ------- ------- TRADING ACCOUNT LIABILITIES(5)(6) In U.S. offices................ 20,711 28,409 34,037 39 54 165 0.19 0.19 0.48 In offices outside the U.S.(4)...................... 22,696 21,150 39,942 17 31 112 0.07 0.15 0.28 -------- -------- -------- ------- ------- ------- Total.......................... 43,407 49,559 73,979 56 85 277 0.13 0.17 0.37 -------- -------- -------- ------- ------- ------- INVESTMENT BANKING AND BROKERAGE BORROWINGS In U.S. offices................ 16,970 11,656 13,554 1,188 663 587 7.00 5.69 4.33 In offices outside the U.S.(4)...................... 539 593 1,773 58 86 151 10.76 14.50 8.52 -------- -------- -------- ------- ------- ------- Total.......................... 17,509 12,249 15,327 1,246 749 738 7.12 6.11 4.82 -------- -------- -------- ------- ------- ------- SHORT-TERM BORROWINGS In U.S. offices................ 42,482 35,318 31,874 2,131 1,631 1,710 5.02 4.62 5.36 In offices outside the U.S.(4)...................... 8,809 9,539 7,543 1,223 1,343 1,082 13.88 14.08 14.34 -------- -------- -------- ------- ------- ------- Total.......................... 51,291 44,857 39,417 3,354 2,974 2,792 6.54 6.63 7.08 -------- -------- -------- ------- ------- ------- LONG-TERM DEBT In U.S. offices................ 84,658 79,392 72,926 5,679 4,802 4,638 6.71 6.05 6.36 In offices outside the U.S.(4)...................... 10,402 9,548 6,803 662 776 497 6.36 8.13 7.31 -------- -------- -------- ------- ------- ------- Total.......................... 95,060 88,940 79,729 6,341 5,578 5,135 6.67 6.27 6.44 -------- -------- -------- ------- ------- ------- MANDATORILY REDEEMABLE SECURITIES OF SUBSIDIARY TRUSTS....................... 4,920 4,920 3,687 378 368 295 7.68 7.48 8.00 -------- -------- -------- ------- ------- ------- ===== ===== ===== Demand deposits in U.S. offices...................... 9,998 10,761 10,747 Other non-interest-bearing liabilities(5)............... 189,977 173,852 171,551 TOTAL STOCKHOLDERS' EQUITY..... 61,529 53,750 49,463 -------- -------- -------- ------- ------- ------- TOTAL LIABILITIES AND STOCKHOLDERS' EQUITY......... $876,652 $777,075 $791,356 $36,638 $28,674 $30,692 ======== ======== ======== ======= ======= ======= ===== ===== ===== NET INTEREST REVENUE AS A PERCENTAGE OF AVERAGE INTEREST-EARNING ASSETS In U.S. offices(8)............. $471,277 $407,304 $390,885 $17,578 $16,543 $15,519 3.73 4.06 3.97 In offices outside the U.S.(8)...................... 269,837 251,130 286,192 11,037 10,100 8,655 4.09 4.02 3.02 -------- -------- -------- ------- ------- ------- TOTAL.......................... $741,114 $658,434 $677,077 $28,615 $26,643 $24,174 3.86 4.05 3.57 ======== ======== ======== ======= ======= ======= ===== ===== ===== </TABLE> - -------------------------- (1) The taxable equivalent adjustment is based on the U.S. federal statutory tax rate of 35%. 151
(2) Interest rates and amounts include the effects of risk management activities associated with the respective asset and liability categories. See Note 23 of Notes to Consolidated Financial Statements. (3) Monthly or quarterly averages have been used by certain subsidiaries, where daily averages are unavailable. (4) Average rates reflect prevailing local interest rates including inflationary effects and monetary correction in certain countries. (5) The fair value carrying amounts of derivative and foreign exchange contracts are reported in non-interest earning assets and other non-interest bearing liabilities. (6) Interest expense on trading account liabilities of Salomon Smith Barney is reported as a reduction of interest revenue. (7) Savings deposits consist of Insured Money Market Rate accounts, NOW accounts, and other savings deposits. (8) Includes allocations for capital and funding costs based on the location of the asset. 152
ANALYSIS OF CHANGES IN NET INTEREST REVENUE <TABLE> <CAPTION> 2000 VS. 1999 1999 VS. 1998 -------------------------------- -------------------------------- INCREASE INCREASE (DECREASE) (DECREASE) DUE TO CHANGE DUE TO CHANGE IN: IN: ------------------- ------------------- AVERAGE AVERAGE NET AVERAGE AVERAGE NET In Millions of Dollars on a Taxable Equivalent Basis(1) VOLUME RATE CHANGE(2) VOLUME RATE CHANGE(2) -------- -------- ---------- -------- -------- ---------- <S> <C> <C> <C> <C> <C> <C> CASH AND DUE FROM BANKS..................................... $ 11 $ 6 $ 17 $ (3) $ (6) $ (9) ------ ------ ------ ------- ------- ------- DEPOSITS AT INTEREST WITH BANKS(3).......................... 71 163 234 (157) 79 (78) ------ ------ ------ ------- ------- ------- FEDERAL FUNDS SOLD AND SECURITIES BORROWED OR PURCHASED UNDER AGREEMENTS TO RESELL In U.S. offices............................................. 1,134 1,400 2,534 355 (322) 33 In offices outside the U.S.(3).............................. (100) 368 268 (1,149) 187 (962) ------ ------ ------ ------- ------- ------- Total....................................................... 1,034 1,768 2,802 (794) (135) (929) ------ ------ ------ ------- ------- ------- BROKERAGE RECEIVABLES In U.S. offices............................................. 719 204 923 266 (141) 125 In offices outside the U.S.(3).............................. (8) 140 132 (154) 142 (12) ------ ------ ------ ------- ------- ------- Total....................................................... 711 344 1,055 112 1 113 ------ ------ ------ ------- ------- ------- TRADING ACCOUNT ASSETS(4) In U.S. offices............................................. 236 700 936 (511) (415) (926) In offices outside the U.S.(3).............................. 194 157 351 (822) 187 (635) ------ ------ ------ ------- ------- ------- Total....................................................... 430 857 1,287 (1,333) (228) (1,561) ------ ------ ------ ------- ------- ------- INVESTMENTS In U.S. offices............................................. 458 188 646 422 175 597 In offices outside the U.S.(3).............................. 134 (872) (738) 342 119 461 ------ ------ ------ ------- ------- ------- Total....................................................... 592 (684) (92) 764 294 1,058 ------ ------ ------ ------- ------- ------- LOANS--CONSUMER In U.S. offices............................................. 2,447 29 2,476 1,277 (436) 841 In offices outside the U.S.(3).............................. 803 (79) 724 1,482 (371) 1,111 ------ ------ ------ ------- ------- ------- Total....................................................... 3,250 (50) 3,200 2,759 (807) 1,952 ------ ------ ------ ------- ------- ------- LOANS--COMMERCIAL In U.S. offices............................................. 439 (121) 318 225 (204) 21 In offices outside the U.S.(3).............................. 606 235 841 791 (890) (99) ------ ------ ------ ------- ------- ------- Total....................................................... 1,045 114 1,159 1,016 (1,094) (78) ------ ------ ------ ------- ------- ------- TOTAL LOANS................................................. 4,295 64 4,359 3,775 (1,901) 1,874 ------ ------ ------ ------- ------- ------- OTHER INTEREST-EARNING ASSETS............................... 207 67 274 61 (78) (17) ------ ------ ------ ------- ------- ------- TOTAL INTEREST REVENUE...................................... 7,351 2,585 9,936 2,425 (1,974) 451 ====== ====== ====== ======= ======= ======= </TABLE> 153
ANALYSIS OF CHANGES IN NET INTEREST REVENUE (CONTINUED) <TABLE> <CAPTION> 2000 VS. 1999 1999 VS. 1998 -------------------------------- -------------------------------- INCREASE INCREASE (DECREASE) (DECREASE) DUE TO CHANGE DUE TO CHANGE IN: IN: ------------------- ------------------- AVERAGE AVERAGE NET AVERAGE AVERAGE NET In Millions of Dollars on a Taxable Equivalent Basis(1) VOLUME RATE CHANGE(2) VOLUME RATE CHANGE(2) -------- -------- ---------- -------- -------- ---------- <S> <C> <C> <C> <C> <C> <C> DEPOSITS In U.S. offices............................................. 202 487 689 80 (317) (237) In offices outside the U.S.(3).............................. 1,548 105 1,653 1,210 (1,920) (710) ------ ------ ------ ------- ------- ------- Total....................................................... 1,750 592 2,342 1,290 (2,237) (947) ------ ------ ------ ------- ------- ------- FEDERAL FUNDS PURCHASED AND SECURITIES LOANED OR SOLD UNDER AGREEMENTS TO REPURCHASE In U.S. offices............................................. 2,310 1,033 3,343 (268) (172) (440) In offices outside the U.S.(3).............................. (183) 756 573 (1,242) 160 (1,082) ------ ------ ------ ------- ------- ------- Total....................................................... 2,127 1,789 3,916 (1,510) (12) (1,522) ------ ------ ------ ------- ------- ------- BROKERAGE PAYABLES In U.S. offices............................................. 103 (40) 63 47 (92) (45) In offices outside the U.S.(3).............................. 1 21 22 (16) (5) (21) ------ ------ ------ ------- ------- ------- Total....................................................... 104 (19) 85 31 (97) (66) ------ ------ ------ ------- ------- ------- TRADING ACCOUNT LIABILITIES(4) In U.S. offices............................................. (15) -- (15) (24) (87) (111) In offices outside the U.S.(3).............................. 3 (17) (14) (40) (41) (81) ------ ------ ------ ------- ------- ------- Total....................................................... (12) (17) (29) (64) (128) (192) ------ ------ ------ ------- ------- ------- INVESTMENT BANKING AND BROKERAGE BORROWINGS In U.S. offices............................................. 348 177 525 (90) 166 76 In offices outside the U.S.(3).............................. (7) (21) (28) (135) 70 (65) ------ ------ ------ ------- ------- ------- Total....................................................... 341 156 497 (225) 236 11 ------ ------ ------ ------- ------- ------- SHORT-TERM BORROWINGS In U.S. offices............................................. 351 149 500 174 (253) (79) In offices outside the U.S.(3).............................. (102) (18) (120) 281 (20) 261 ------ ------ ------ ------- ------- ------- Total....................................................... 249 131 380 455 (273) 182 ------ ------ ------ ------- ------- ------- LONG-TERM DEBT In U.S. offices............................................. 332 545 877 398 (234) 164 In offices outside the U.S.(3).............................. 65 (179) (114) 218 61 279 ------ ------ ------ ------- ------- ------- Total....................................................... 397 366 763 616 (173) 443 ------ ------ ------ ------- ------- ------- MANDATORILY REDEEMABLE SECURITIES OF SUBSIDIARY TRUSTS...... -- 10 10 93 (20) 73 ------ ------ ------ ------- ------- ------- TOTAL INTEREST EXPENSE...................................... 4,956 3,008 7,964 686 (2,704) (2,018) ====== ====== ====== ======= ======= ======= NET INTEREST REVENUE........................................ $2,395 $ (423) $1,972 $ 1,739 $ 730 $ 2,469 ====== ====== ====== ======= ======= ======= </TABLE> - ------------------------------ (1) The taxable equivalent adjustment is based on the U.S. federal statutory tax rate of 35%. (2) Rate/volume variance is allocated based on the percentage relationship of changes in volume and changes in rate to the total net change. (3) Changes in average rates reflect changes in prevailing local interest rates including inflationary effects and monetary correction in certain countries. (4) Interest expense on trading account liabilities of Salomon Smith Barney is reported as a reduction of interest revenue. 154
RATIOS <TABLE> <CAPTION> 2000 1999 1998 -------- -------- -------- <S> <C> <C> <C> Net income to average assets........................... 1.54% 1.45% 0.88% Return on common stockholders' equity(1)............... 22.43% 21.47% 14.39% Return on total stockholders' equity(2)................ 21.97% 20.92% 14.05% Total average equity to average assets................. 7.02% 6.92% 6.25% Dividends declared per common share as a percentage of income per common share, assuming dilution........... 19.8% 18.7% 21.1% ===== ===== ===== </TABLE> - ------------------------ (1) Based on net income less total preferred stock dividends as a percentage of average common stockholders' equity. (2) Based on net income less redeemable preferred stock dividends as a percentage of average total stockholders' equity. FOREGONE INTEREST REVENUE ON LOANS(1) <TABLE> <CAPTION> IN U.S IN NON-U.S. 2000 In Millions of Dollars OFFICES OFFICES TOTAL -------- ----------- -------- <S> <C> <C> <C> Interest revenue that would have been accrued at original contractual rates(2).................... $235 $409 $644 Amount recognized as interest revenue(2)........... 113 134 247 ---- ---- ---- FOREGONE INTEREST REVENUE.......................... $122 $275 $397 ==== ==== ==== </TABLE> - ------------------------ (1) Relates to commercial cash-basis and renegotiated loans and consumer loans on which accrual of interest had been suspended. (2) Interest revenue in offices outside the U.S. may reflect prevailing local interest rates, including the effects of inflation and monetary correction in certain countries. 155
LOAN MATURITIES AND SENSITIVITY TO CHANGES IN INTEREST RATES <TABLE> <CAPTION> DUE OVER 1 WITHIN 1 BUT WITHIN OVER In Millions of Dollars at Year-End YEAR 5 YEARS 5 YEARS TOTAL -------- ---------- -------- -------- <S> <C> <C> <C> <C> MATURITIES OF THE GROSS COMMERCIAL LOAN PORTFOLIO In U.S. offices Commercial and industrial loans..................... $12,594 $21,917 $ 2,709 $ 37,220 Mortgage and real estate............................ 526 985 1,979 3,490 Lease financing..................................... 2,300 9,998 2,566 14,864 In offices outside the U.S............................ 59,403 21,670 4,958 86,031 ------- ------- ------- -------- TOTAL COMMERCIAL LOAN PORTFOLIO....................... $74,823 $54,570 $12,212 $141,605 ======= ======= ======= ======== SENSITIVITY OF LOANS DUE AFTER ONE YEAR TO CHANGES IN INTEREST RATES(1) Loans at predetermined interest rates................. $27,365 $ 5,466 Loans at floating or adjustable interest rates........ 27,205 6,746 ------- ------- ------- -------- TOTAL................................................. $54,570 $12,212 ======= ======= ======= ======== </TABLE> - ------------------------ (1) Based on contractual terms. Repricing characteristics may effectively be modified from time to time using derivative contracts. See Notes 23 and 25 of Notes to Consolidated Financial Statements. 156
LOANS OUTSTANDING <TABLE> <CAPTION> In Millions of Dollars at Year-End 2000 1999 1998 1997 1996 -------- -------- -------- -------- -------- <S> <C> <C> <C> <C> <C> CONSUMER LOANS In U.S. offices Mortgage and real estate................ $ 73,166 $ 59,376 $ 51,381 $ 46,465 $ 43,357 Installment, revolving credit, and other................................. 78,017 63,374 60,564 57,340 53,833 -------- -------- -------- -------- -------- 151,183 122,750 111,945 103,805 97,190 -------- -------- -------- -------- -------- In offices outside the U.S. Mortgage and real estate................ 24,988 24,808 21,578 19,140 19,729 Installment, revolving credit, and other................................. 55,515 50,293 42,375 34,989 36,034 Lease financing......................... 427 475 484 544 754 -------- -------- -------- -------- -------- 80,930 75,576 64,437 54,673 56,517 -------- -------- -------- -------- -------- 232,113 198,326 176,382 158,478 153,707 Unearned income........................... (3,234) (3,757) (3,377) (3,432) (3,504) -------- -------- -------- -------- -------- CONSUMER LOANS--NET....................... 228,879 194,569 173,005 155,046 150,203 COMMERCIAL LOANS In U.S. offices Commercial and industrial............... 37,220 30,163 26,182 23,597 20,762 Lease financing......................... 14,864 10,281 9,477 8,690 7,474 Mortgage and real estate................ 3,490 5,439 9,000 7,666 8,249 -------- -------- -------- -------- -------- 55,574 45,883 44,659 39,953 36,485 -------- -------- -------- -------- -------- In offices outside the U.S. Commercial and industrial............... 69,111 61,984 56,761 48,284 37,581 Mortgage and real estate................ 1,720 1,728 1,792 1,651 1,815 Loans to financial institutions......... 9,559 7,692 8,008 6,480 4,837 Lease financing......................... 3,689 2,459 1,760 1,439 1,429 Governments and official institutions... 1,952 3,250 2,132 2,376 2,252 -------- -------- -------- -------- -------- 86,031 77,113 70,453 60,230 47,914 -------- -------- -------- -------- -------- 141,605 122,996 115,112 100,183 84,399 Unearned income........................... (3,462) (2,664) (2,439) (2,186) (2,030) -------- -------- -------- -------- -------- COMMERCIAL LOANS--NET..................... 138,143 120,332 112,673 97,997 82,369 TOTAL LOANS--NET OF UNEARNED INCOME....... 367,022 314,901 285,678 253,043 232,572 Allowance for credit losses............... (8,961) (8,853) (8,596) (8,087) (7,306) -------- -------- -------- -------- -------- TOTAL LOANS--NET OF UNEARNED INCOME AND ALLOWANCE FOR CREDIT LOSSES............. $358,061 $306,048 $277,082 $244,956 $225,266 ======== ======== ======== ======== ======== </TABLE> 157
CASH-BASIS, RENEGOTIATED, AND PAST DUE LOANS <TABLE> <CAPTION> In Millions of Dollars at Year-End 2000 1999 1998 1997 1996 -------- -------- -------- -------- -------- <S> <C> <C> <C> <C> <C> COMMERCIAL CASH-BASIS LOANS Collateral dependent (at lower of cost or collateral value)(1)......................................... $ 554 $ 519 $ 649 $ 441 $ 425 Other............................................... 1,580 1,162 1,201 806 642 ------ ------ ------ ------ ------ TOTAL............................................... $2,134 $1,681 $1,850 $1,247 $1,067 ====== ====== ====== ====== ====== COMMERCIAL CASH-BASIS LOANS In U.S. offices..................................... $ 884 $ 509 $ 704 $ 469 $ 450 In offices outside the U.S.......................... 1,250 1,172 1,146 778 617 ------ ------ ------ ------ ------ TOTAL............................................... $2,134 $1,681 $1,850 $1,247 $1,067 ====== ====== ====== ====== ====== COMMERCIAL RENEGOTIATED LOANS In U.S. offices..................................... $ 212 $ 327 $ 812 $ 599 $ 684 In offices outside the U.S.......................... 131 122 104 81 97 ------ ------ ------ ------ ------ TOTAL............................................... $ 343 $ 449 $ 916 $ 680 $ 781 ====== ====== ====== ====== ====== CONSUMER LOANS ON WHICH ACCRUAL OF INTEREST HAD BEEN SUSPENDED In U.S. offices..................................... $1,797 $1,696 $1,751 $1,679 $1,779 In offices outside the U.S.......................... 1,607 1,821 1,664 1,063 1,118 ------ ------ ------ ------ ------ TOTAL............................................... $3,404 $3,517 $3,415 $2,742 $2,897 ====== ====== ====== ====== ====== ACCRUING LOANS 90 OR MORE DAYS DELINQUENT(2) In U.S. offices..................................... $1,247 $ 874 $ 833 $ 871 $ 867 In offices outside the U.S.......................... 385 452 532 467 422 ------ ------ ------ ------ ------ TOTAL............................................... $1,632 $1,326 $1,365 $1,338 $1,289 ====== ====== ====== ====== ====== </TABLE> - ------------------------ (1) A cash-basis loan is defined as collateral dependent when repayment is expected to be provided solely by the underlying collateral and there are no other available and reliable sources of repayment, in which case the loans are written down to the lower of cost or collateral value. (2) Substantially all consumer loans of which $503 million, $379 million, $267 million, $240 million, and $239 million are government-guaranteed student loans at December 31, 2000, 1999, 1998, 1997, and 1996, respectively. 158
OTHER REAL ESTATE OWNED AND OTHER REPOSSESSED ASSETS <TABLE> <CAPTION> In Millions of Dollars at Year-End 2000 1999 1998 1997 1996 -------- -------- -------- -------- -------- <S> <C> <C> <C> <C> <C> OTHER REAL ESTATE OWNED Consumer(1).............................................. $366 $332 $358 $ 356 $ 520 Commercial(1)............................................ 291 511 514 716 1,330 Corporate/Other.......................................... 8 14 8 8 6 ---- ---- ---- ------ ------ TOTAL OTHER REAL ESTATE OWNED............................ $665 $857 $880 $1,080 $1,856 ==== ==== ==== ====== ====== OTHER REPOSSESSED ASSETS(2).............................. $192 $139 $103 $ 74 $ 67 ==== ==== ==== ====== ====== </TABLE> - ------------------------ (1) Represents repossessed real estate, carried at lower of cost or fair value, less costs to sell. (2) Primarily commercial transportation equipment and manufactured housing, carried at lower of cost or fair value, less costs to sell. 159
DETAILS OF CREDIT LOSS EXPERIENCE <TABLE> <CAPTION> In Millions of Dollars 2000 1999 1998 1997 1996 -------- -------- -------- -------- -------- <S> <C> <C> <C> <C> <C> ALLOWANCE FOR CREDIT LOSSES AT BEGINNING OF YEAR............ $8,853 $8,596 $8,087 $7,306 $6,830 ------ ------ ------ ------ ------ PROVISION FOR CREDIT LOSSES................................. Consumer.................................................... 4,345 4,169 3,753 3,523 3,213 Commercial.................................................. 994 591 508 72 108 ------ ------ ------ ------ ------ 5,339 4,760 4,261 3,595 3,321 ------ ------ ------ ------ ------ GROSS CREDIT LOSSES CONSUMER(1) In U.S. offices............................................. 3,413 3,063 3,057 3,011 2,444 In offices outside the U.S.................................. 1,939 1,799 1,235 989 963 COMMERCIAL Mortgage and real estate In U.S. offices........................................... 10 59 40 33 50 In offices outside the U.S................................ 22 11 58 47 32 Governments and official institutions outside the U.S....... -- -- 3 -- -- Loans to financial institutions in offices outside the U.S....................................................... -- 11 97 7 12 Commercial and industrial In U.S. offices........................................... 563 186 125 70 101 In offices outside the U.S................................ 311 479 348 112 161 ------ ------ ------ ------ ------ 6,258 5,608 4,963 4,269 3,763 ====== ====== ====== ====== ====== CREDIT RECOVERIES CONSUMER(1) In U.S. offices............................................. 526 413 427 450 373 In offices outside the U.S.................................. 403 356 287 264 233 COMMERCIAL Mortgage and real estate In U.S. offices........................................... 9 36 89 50 92 In offices outside the U.S................................ 1 2 10 7 8 Governments and official institutions outside the U.S....... 1 -- 10 36 81 Loans to financial institutions in offices outside the U.S....................................................... 9 5 16 17 1 Commercial and industrial In U.S. offices........................................... 45 19 36 72 54 In offices outside the U.S................................ 70 94 30 55 44 ------ ------ ------ ------ ------ 1,064 925 905 951 886 ====== ====== ====== ====== ====== NET CREDIT LOSSES In U.S. offices............................................. 3,406 2,840 2,670 2,542 2,076 In offices outside the U.S.................................. 1,788 1,843 1,388 776 801 ------ ------ ------ ------ ------ 5,194 4,683 4,058 3,318 2,877 ====== ====== ====== ====== ====== Other--net(2)............................................... (37) 180 306 504 32 ALLOWANCE FOR CREDIT LOSSES AT END OF YEAR.................. $8,961 $8,853 $8,596 $8,087 $7,306 ====== ====== ====== ====== ====== Net consumer credit losses.................................. $4,423 $4,093 $3,578 $3,286 $2,801 As a percentage of average consumer loans................... 2.11% 2.24% 2.23% 2.19% 1.99% ====== ====== ====== ====== ====== Net commercial credit losses................................ $ 771 $ 590 $ 480 $ 32 $ 76 As a percentage of average commercial loans................. 0.60% 0.51% 0.45% 0.04% 0.10% ====== ====== ====== ====== ====== </TABLE> - ------------------------------ (1) Consumer credit losses and recoveries primarily relate to revolving credit and installment loans. (2) In 2000 and 1999, primarily includes the addition of allowance for credit losses related to acquisitions and foreign currency translation effects. In 1998, reflects the addition of $320 million of credit loss reserves related to the acquisition of the Universal Card portfolio. In 1997, $373 million was restored to the allowance for credit losses that had previously been attributed to credit card securitization transactions where the exposure to credit losses was contractually limited to the cash flows from the securitized receivables, $50 million attributable to standby letters of credit and guarantees was reclassified to other liabilities, and $50 million attributable to derivative and foreign exchange contracts was reclassified as a deduction from trading account assets. 160
AVERAGE DEPOSIT LIABILITIES IN OFFICES OUTSIDE THE U.S.(1) <TABLE> <CAPTION> 2000 1999 1998 ------------------------ ------------------------ ------------------------ AVERAGE AVERAGE AVERAGE AVERAGE AVERAGE AVERAGE In Millions of Dollars at Year-End BALANCE INTEREST RATE BALANCE INTEREST RATE BALANCE INTEREST RATE -------- ------------- -------- ------------- -------- ------------- <S> <C> <C> <C> <C> <C> <C> Banks(2).......................... $ 32,063 6.78% $ 21,993 7.10% $ 18,559 8.46% Other demand deposits............. 44,486 3.64 38,798 3.14 33,466 3.49 Other time and savings deposits(2)..................... 132,325 5.57 119,581 5.64 107,999 6.94 -------- ---- -------- ---- -------- ---- TOTAL............................. $208,874 5.35 $180,372 5.28 $160,024 6.39 ======== ==== ======== ==== ======== ==== </TABLE> - ------------------------ (1) Interest rates and amounts include the effects of risk management activities, and also reflect the impact of the local interest rates prevailing in certain countries. See Note 23 of Notes to Consolidated Financial Statements. (2) Primarily consists of time certificates of deposit and other time deposits in denominations of $100,000 or more. MATURITY PROFILE OF TIME DEPOSITS ($100,000 OR MORE) IN U.S. OFFICES <TABLE> <CAPTION> UNDER 3 OVER 3 TO 6 OVER 6 TO 12 OVER 12 In Millions of Dollars at Year-End 2000 MONTHS MONTHS MONTHS MONTHS -------- ----------- ------------ -------- <S> <C> <C> <C> <C> Certificates of deposit............... $7,566 $1,619 $987 $973 Other time deposits................... 502 261 165 20 </TABLE> SHORT-TERM AND OTHER BORROWINGS(1) <TABLE> <CAPTION> FEDERAL FUNDS PURCHASED AND SECURITIES SOLD UNDER AGREEMENTS OTHER FUNDS TO REPURCHASE COMMERCIAL PAPER BORROWED(2) ------------------------------ ------------------------------ ------------------------------ In Millions of Dollars 2000 1999 1998 2000 1999 1998 2000 1999 1998 <S> <C> <C> <C> <C> <C> <C> <C> <C> <C> Amounts outstanding at year-end............. $110,625 $92,591 $81,025 $38,152 $31,018 $28,175 $13,523 $13,321 $13,647 Average outstanding during the year...... 134,090 109,995 134,743 37,837 32,769 29,206 13,454 12,088 10,211 Maximum month-end outstanding.......... 154,543 129,112 163,421 43,037 38,018 35,919 15,478 17,666 13,646 -------- ------- ------- ------- ------- ------- ------- ------- ------- WEIGHTED-AVERAGE INTEREST RATE During the year(3)..... 8.85% 7.23% 7.03% 5.02% 4.75% 5.09% 10.82% 11.72% 12.79% At year-end(4)......... 5.78% 4.34% 4.94% 5.36% 5.69% 5.22% 8.76% 7.94% 11.38% <CAPTION> INVESTMENT BANKING AND BROKERAGE BORROWINGS ------------------------------ In Millions of Dollars 2000 1999 1998 <S> <C> <C> <C> Amounts outstanding at year-end............. $18,227 $13,719 $14,040 Average outstanding during the year...... 17,509 12,249 15,327 Maximum month-end outstanding.......... 21,701 14,048 20,576 ------- ------- ------- WEIGHTED-AVERAGE INTEREST RATE During the year(3)..... 7.12% 6.11% 4.82% At year-end(4)......... 6.55% 6.00% 4.59% </TABLE> - ------------------------------ (1) Original maturities of less than one year. (2) Rates reflect the impact of local interest rates prevailing in countries outside the United States. (3) Interest rates include the effects of risk management activities. See Notes 12 and 23 of Notes to Consolidated Financial Statements. (4) Based on contractual rates at year-end. 161
CROSS-MARKETING Citigroup has a number of distribution channels for the sale of the various companies' products. Those distribution channels range from Travelers Property Casualty agents to the Citibank branches; Citibank credit card representatives to Primerica Financial Services (PFS) agents; and Salomon Smith Barney Financial Consultants (SSB FCs) to CitiFinancial branches. The current cross-marketing efforts include: PFS agents are marketing Smith Barney mutual funds, CitiFinancial personal loans and Travelers Bank & Trust, fsb real-estate secured loans ($.A.F.E.-TM- loans and $.M.A.R.T. loans-TM-), and Travelers Life & Annuity variable annuities. Investment employees at Citibank branches are marketing Travelers Life & Annuity variable annuities and Citigroup Asset Management Group mutual funds. SSB FCs are marketing Travelers Life & Annuity annuities, Citibank mortgage loans, including loans using SSB equities as the down payment, and Citigroup Asset Management Group mutual funds. The call centers for Citibank's credit card operation refer cardholders to Travelers Property Casualty for auto and homeowners insurance, to CitiFinancial for debt consolidation loans, and to Travelers Bank & Trust, fsb for real-estate secured loans. Insurance agents representing Travelers Property Casualty refer customers interested in student loans, credit cards, mortgage loans, commercial leasing, and small business loans to Citibank. Salomon Smith Barney institutional sales representatives and Citibank corporate relationship managers jointly market their transaction services, asset management, lending and liquidity, trading, and underwriting capabilities. PROPERTY-CASUALTY INSURANCE SERVICES--OTHER INFORMATION SELECTED PRODUCT INFORMATION The following table sets forth by product line net written premiums (including Associates) for Commercial Lines and Personal Lines for the year ended 2000. Many larger National Accounts customers often demand service-type products, primarily for workers' compensation coverage and to a lesser extent general liability and commercial automobile coverages. These types of products include risk management services such as claims settlement, loss control and engineering. Many of these products generate fee income rather than net written premiums, and are not reflected in the following table. 162
2000 NET WRITTEN PREMIUMS <TABLE> <CAPTION> AMOUNT OF PERCENTAGE OF NET WRITTEN TOTAL NET WRITTEN In Millions of Dollars PREMIUMS PREMIUMS ----------- ----------------- <S> <C> <C> PRODUCT LINE Commercial Lines Commercial multi-peril.......................... $1,695 29.5% Workers' compensation........................... 1,065 18.5 Commercial automobile........................... 1,123 19.6 Property........................................ 735 12.8 General liability............................... 606 10.6 Fidelity, surety, and other..................... 516 9.0 ------ ----- TOTAL COMMERCIAL LINES............................ $5,740 100.0% ====== ===== Personal Lines Automobile...................................... $2,422 61.7% Homeowners and other............................ 1,502 38.3 ------ ----- TOTAL PERSONAL LINES.............................. $3,924 100.0% ====== ===== </TABLE> PROPERTY AND CASUALTY RESERVES Property and casualty claim reserves are established to account for the estimated ultimate costs of claims and claim adjustment expenses for claims that have been reported but not yet settled and claims that have been incurred but not reported. The Company establishes reserves by major product line, coverage and year. The table on page 165 sets forth the year-end reserves from 1990 through 2000, and the subsequent changes in those reserves, presented on a historical basis for the Company. The original estimates, cumulative amounts paid, and reestimated reserves in the table for the years 1990 - 1995 have not been restated to include the property-casualty insurance businesses acquired by the Company from Aetna Services, Inc. in 1996 (Aetna P&C). Beginning in 1996, the table includes the reserve activity of Aetna P&C. The data in the table is presented in accordance with reporting requirements of the Securities and Exchange Commission. Care must be taken to avoid misinterpretation by those unfamiliar with such information or familiar with other data commonly reported by the insurance industry. The following data is not accident year data, but rather a display of 1990 - 2000 year-end reserves and the subsequent changes in those reserves. For instance, the "cumulative deficiency or redundancy" shown in the table for each year represents the aggregate amount by which original estimates of reserves as of that year-end have changed in subsequent years. Accordingly, the cumulative deficiency for a year relates only to reserves at that year-end and such amounts are not additive. Expressed another way, if the original reserves at the end of 1990 included $4 million for a loss that is finally paid in 2000 for $5 million, the $1 million deficiency (the excess of the actual payment of $5 million over the original estimate of $4 million) would be included in the cumulative deficiencies in each of the years 1990 - 1999 shown in the table. Certain factors may distort the reestimated reserves and cumulative deficiency or redundancy shown in the table. For example, a substantial portion of the cumulative deficiencies shown in the table arise from claims on policies written prior to the mid-1970s involving liability exposures such as environmental, asbestos, and other cumulative injury claims. In the post-1984 period, the Company developed more stringent underwriting standards and policy exclusions and significantly contracted or terminated the writing of such risks. See "Management's Discussion and Analysis of Financial 163
Condition and Results of Operations--Environmental Claims, Asbestos Claims and Cumulative Injury Other than Asbestos Claims." General conditions and trends that have affected the development of these liabilities in the past will not necessarily recur in the future. Other factors that affect the data in the table include the discounting of workers' compensation reserves and the use of retrospectively rated insurance policies. To the extent permitted under applicable accounting practices, workers' compensation reserves are discounted to reflect the time value of money, due to the relatively long time period over which these claims are to be paid. Apparent deficiencies will continue to occur as the discount on these workers' compensation reserves is accreted at the appropriate interest rates. Also, a portion of National Accounts business is underwritten with retrospectively rated insurance policies in which the ultimate loss experience is primarily borne by the insured. For this business, increases in loss experience result in an increase in reserves, and an offsetting increase in amounts recoverable from insureds. Likewise, decreases in loss experience result in a decrease in reserves, and an offsetting decrease in amounts recoverable from these insureds. The amounts recoverable on these retrospectively rated policies mitigate the impact of the cumulative deficiencies or redundancies but are not reflected in the table. Because of these and other factors, it is difficult to develop a meaningful extrapolation of estimated future redundancies or deficiencies in loss reserves from the data in the table. The differences between the reserves for claims and claim adjustment expenses shown in the table, which is prepared in accordance with GAAP, and those reported in the annual statements of the Company's subsidiaries filed with state insurance departments, which are prepared in accordance with statutory accounting practices, were: $9 million, $38 million, and $37 million for the years 2000, 1999, and 1998, respectively. 164
The table below reflects Associates for all periods due to the acquisition being accounted for as a pooling of interest. <TABLE> <CAPTION> YEAR ENDED DECEMBER 31, -------------------------------------------------------------------------- In Millions of Dollars 1990(1) 1991(1) 1992(1) 1993(1) 1994(1) 1995(1) 1996(2) <S> <C> <C> <C> <C> <C> <C> <C> RESERVES FOR LOSS AND LOSS ADJUSTMENT EXPENSE ORIGINALLY ESTIMATED..................... $ 9,255 $ 9,421 $ 9,884 $10,205 $10,271 $10,124 $21,839 CUMULATIVE AMOUNTS PAID AS OF One year later.................. 2,432 2,144 2,215 1,907 1,861 1,529 3,714 Two years later................. 3,946 3,593 3,563 3,229 2,897 2,817 6,610 Three years later............... 5,006 4,603 4,571 3,996 4,064 3,911 8,851 Four years later................ 5,768 5,384 5,170 4,950 4,942 4,769 10,365 Five years later................ 6,364 5,860 5,973 5,662 5,655 5,330 Six years later................. 6,759 6,556 6,587 6,270 6,122 Seven years later............... 7,338 7,099 7,127 6,678 Eight years later............... 7,825 7,591 7,492 Nine years later................ 8,280 7,928 Ten years later................. 8,594 RESERVES REESTIMATED AS OF One year later.................. 9,372 9,457 10,023 10,162 9,954 9,860 21,359 Two years later................. 9,484 9,765 10,125 10,127 9,778 9,797 21,174 Three years later............... 9,911 10,050 10,155 10,002 9,864 9,800 20,829 Four years later................ 10,342 10,166 10,161 10,166 9,896 9,746 20,677 Five years later................ 10,495 10,263 10,378 10,193 9,932 9,722 Six years later................. 10,631 10,507 10,413 10,244 9,910 Seven years later............... 10,887 10,536 10,481 10,266 Eight years later............... 10,922 10,617 10,528 Nine years later................ 11,005 10,677 Ten years later................. 11,087 ------- ------- ------- ------- ------- ------- ------- CUMULATIVE DEFICIENCY (REDUNDANCY).................. $ 1,832 $ 1,256 $ 644 $ 61 $ (361) $ (402) $(1,162) ======= ======= ======= ======= ======= ======= ======= Gross liability--end of year.... $13,822 $13,894 $14,740 $29,992 Reinsurance recoverables........ 3,617 3,623 4,616 8,153 ------- ------- ------- ------- Net liability--end of year...... $10,205 $10,271 $10,124 $21,839 ======= ======= ======= ======= GROSS REESTIMATED LIABILITY--LATEST............. $13,988 $13,890 $14,262 $28,731 Reestimated reinsurance recoverables--latest.......... 3,722 3,980 4,540 8,054 ------- ------- ------- ------- NET REESTIMATED LIABILITY--LATEST............. $10,266 $ 9,910 $ 9,722 $20,677 ======= ======= ======= ======= GROSS CUMULATIVE DEFICIENCY (REDUNDANCY).................. $ 166 $ (4) $ (478) $(1,261) ======= ======= ======= ======= <CAPTION> YEAR ENDED DECEMBER 31, ------------------------------ In Millions of Dollars 1997(2) 1998(2) 1999(2) 2000(2) <S> <C> <C> <C> <C> RESERVES FOR LOSS AND LOSS ADJUSTMENT EXPENSE ORIGINALLY ESTIMATED..................... $21,426 $21,152 $20,367 $19,922 CUMULATIVE AMOUNTS PAID AS OF One year later.................. 4,033 4,311 4,281 Two years later................. 6,890 7,137 Three years later............... 8,858 Four years later................ Five years later................ Six years later................. Seven years later............... Eight years later............... Nine years later................ Ten years later................. RESERVES REESTIMATED AS OF One year later.................. 21,094 20,868 20,163 Two years later................. 20,708 20,557 Three years later............... 20,428 Four years later................ Five years later................ Six years later................. Seven years later............... Eight years later............... Nine years later................ Ten years later................. ------- ------- ------- ------- CUMULATIVE DEFICIENCY (REDUNDANCY).................. $ (998) $ (595) $ (204) ======= ======= ======= ======= Gross liability--end of year.... $29,367 $29,139 $28,776 $28,327 Reinsurance recoverables........ 7,941 7,987 8,409 8,405 ------- ------- ------- ------- Net liability--end of year...... $21,426 $21,152 $20,367 $19,922 ======= ======= ======= ======= GROSS REESTIMATED LIABILITY--LATEST............. $28,241 $28,597 $28,447 Reestimated reinsurance recoverables--latest.......... 7,813 8,040 8,284 ------- ------- ------- NET REESTIMATED LIABILITY--LATEST............. $20,428 $20,557 $20,163 ======= ======= ======= GROSS CUMULATIVE DEFICIENCY (REDUNDANCY).................. $(1,126) $ (542) $ (329) ======= ======= ======= </TABLE> - ------------------------------ (1) Reflects reserves of Travelers P&C, excluding Aetna P&C reserves which were acquired on April 2, 1996. Accordingly, the reserve development (net reserves for loss and loss adjustment expense recorded at the end of the year, as originally estimated, less net reserves reestimated as of subsequent years) relates only to losses recorded by Travelers P&C and does not include reserve development recorded by Aetna P&C. (2) Includes Aetna P&C gross reserves of $16.775 billion and net reserves of $11.752 billion acquired on April 2, 1996 and subsequent development recorded by Aetna P&C. PROPERTY AND CASUALTY REINSURANCE TPC reinsures a portion of the risks it underwrites in order to control its exposure to losses, stabilize earnings, and protect capital resources. TPC cedes to reinsurers a portion of these risks and pays premiums based upon the risk and exposure of the policies subject to such reinsurance. 165
Reinsurance involves credit risk and is generally subject to aggregate loss limits. Although the reinsurer is liable to TPC to the extent of the reinsurance ceded, TPC remains primarily liable as the direct insurer on all risks reinsured. TPC also holds collateral, including escrow funds and letters of credit, under certain reinsurance agreements. TPC monitors the financial condition of reinsurers on an ongoing basis, and reviews its reinsurance arrangements periodically. Reinsurers are selected based on their financial condition, business practices, and the price of their product offerings. For additional information concerning reinsurance, see Note 14 of Notes to Consolidated Financial Statements. TPC utilizes a variety of reinsurance agreements to control its exposure to large property and casualty losses. NET RETENTION POLICY. The descriptions below relate to reinsurance arrangements of TPC in effect at January 1, 2001. For third-party liability, including automobile no-fault, the reinsurance agreements used by Construction, and Select Accounts limit the net retention to a maximum of $4 million per insured, per occurrence and for Commercial Accounts limits the net retention to a maximum of $6 million per insured, per occurrence. Gulf Insurance Company, a wholly-owned subsidiary, in its specialty lines of business utilizes various reinsurance mechanisms and has limited its net retention to a maximum of $3.8 million per risk for any line of business. For commercial property insurance, there is a $5 million maximum retention per risk with 100% reinsurance coverage for risks with higher limits. The reinsurance agreement in place for workers' compensation policies written by Commercial Accounts, Construction, National Accounts, Select Accounts, and some segments of Alternative Markets and Gulf Specialty covers 100% of each loss between $1 million and $10 million and 90% of each loss between $10 million and $20 million. For National Accounts, reinsurance arrangements are typically tiered, or layered, such that only levels of risk acceptable to TPC are retained. Personal Lines retains the first $5 million of umbrella policies and purchases facultative reinsurance for limits over $5 million. For personal property insurance, there is a $6 million maximum retention per risk. For executive liability coverages such as errors and omissions liability, directors' and officers' liability, employment practices liability and blended insurance, Bond Specialty retains from $2 million up to $5 million per risk. For surety protection, Bond Specialty generally retains up to $10 million per principal. The risk tolerance of Bond Specialty varies by line of business and by risk. CATASTROPHE REINSURANCE. TPC utilizes reinsurance agreements with nonaffiliated reinsurers to control its exposure to losses resulting from one occurrence. For the accumulation of net property losses arising out of one occurrence, reinsurance agreements cover 40% of total losses between $250 million and $750 million. For multiple workers' compensation losses arising from a single occurrence, reinsurance agreements cover 100% of losses between $20 million and $250 million and, for workers' compensation losses caused by property perils, reinsurance agreements cover 40% of losses between $250 million and $750 million. REGULATION AND SUPERVISION BANK HOLDING COMPANY REGULATION. The Company is a bank holding company within the meaning of the U.S. Bank Holding Company Act of 1956 (BHC Act) registered with, and subject to examination by, the Federal Reserve Board (FRB). The subsidiary depository institutions of the Company (the banking subsidiaries), including its principal bank subsidiary, Citibank, N.A. (Citibank), are subject to supervision and examination by their respective federal and state banking authorities. The nationally chartered subsidiary banks, including Citibank, are supervised and examined by the Office of the Comptroller of the Currency (OCC); federal savings association subsidiaries are regulated by the Office of Thrift Supervision (OTS); and state-chartered depository institutions are supervised by the banking departments within their respective states (New York, Delaware, South Dakota, and Utah), as well as the Federal Deposit Insurance Corporation (FDIC). The FDIC also has back-up enforcement authority with respect to each of the banking subsidiaries, the deposits of which are insured by the FDIC, up to applicable limits. The Company also controls (either directly or indirectly) overseas banks, branches, 166
and agencies. In general, the Company's overseas activities are regulated by the FRB and OCC, and are also regulated by supervisory authorities of the host countries. The Company's banking subsidiaries are also subject to requirements and restrictions under federal, state, and foreign law, including requirements to maintain reserves against deposits, restrictions on the types and amounts of loans that may be made and the interest that may be charged thereon, and limitations on the types of investments that may be made and the types of services that may be offered. Various consumer laws and regulations also affect the operations of the Company's banking subsidiaries. The activities of U.S. bank holding companies are generally limited to the business of banking, managing or controlling banks, and other activities that the FRB determines to be so closely related to banking or managing or controlling banks as to be a proper incident thereto. In addition, under the Gramm-Leach-Bliley Act (the GLB Act), which became effective in most significant respects on March 11, 2000, bank holding companies, such as the Company, all of whose controlled depository institutions are "well capitalized" and "well managed", as defined in Federal Reserve Regulation Y, and which obtain satisfactory Community Reinvestment Act ratings, have the ability to declare themselves to be "financial holding companies" and engage in a broader spectrum of activities, including insurance underwriting and brokerage (including annuities), and underwriting and dealing securities without a revenue limit and without limits on the amounts of equity securities it may hold in conducting its underwriting and dealing activities. The Company's declaration to become a financial holding company became effective on the first eligible date, and as a result, it is permitted to continue to operate its insurance businesses as currently structured and, if it so determines, to expand those businesses. Financial holding companies that do not continue to meet all of the requirements for such status will, depending on which requirement they fail to meet, face not being able to undertake new activities or acquisitions that are financial in nature, or losing their ability to continue those activities that are not generally permissible for bank holding companies. Under the BHC Act, after two years from the date as of which the Company became a bank holding company, the Company was required to conform any activities that were not considered to be closely related to banking or financial in nature under the BHC Act. This two-year period may be extended by the FRB for three additional one-year periods, upon application by the Company and finding by the FRB that such an extension would not be detrimental to the public interest. The Company obtained such an extension with respect to several activities in October 2000. Section 20 of the Glass-Steagall Act, which prohibited a member bank of the Federal Reserve System, such as Citibank, from being affiliated with a company that is principally engaged in underwriting and dealing in securities, was repealed, effective March 11, 2000, as part of the GLB Act. Accordingly, the Company is permitted to operate without regard to revenue limits on "ineligible" securities activities and to acquire other securities firms without regard to such limits. The repeal of Section 20 also permits the Company's securities subsidiaries to organize, sponsor, distribute, and advise open-end mutual funds in the United States, as well as outside the United States. Under the BHC Act, nonbank acquisitions in the U.S. have generally been limited to 5% of voting shares unless the FRB determines that the acquisition is so closely related to banking as to be a proper incident to banking or managing or controlling banks. Under the GLB Act, financial holding companies are able to make acquisitions in companies that engage in activities that are financial in nature, both in the U.S. and outside of the United States. No prior approval of the FRB is generally required for such acquisitions except for the acquisition of U.S. depository institutions and foreign banks. In addition, under a new merchant banking authority added by the GLB Act, financial holding companies are authorized to invest in companies that engage in activities that are not financial in nature, as long as the financial holding company makes its investment with the intention of limiting the investment in duration, does not manage the company on a day-to-day basis, and the investee company does not cross-market with any of the financial holding company's controlled depository institutions. This 167
authority applies to investments both in the U.S. and outside the United States. Regulations interpreting and conditioning this authority have been promulgated. Bank holding companies also retain their authority, subject to prior specific or general FRB consent, to acquire less than 20 percent of the voting securities of a company that does not do business in the United States, and 20 percent or more of the voting securities of any such company if the FRB finds by regulation or order that its activities are usual in connection with banking or finance outside the United States. In general, bank holding companies that are not financial holding companies may engage in a broader range of activities outside the United States than they may engage in inside the United States, including sponsoring, distributing, and advising open-end mutual funds, and underwriting and dealing in debt, and to a limited extent, equity securities, subject to local country laws. Subject to certain limitations and restrictions, a U.S. bank holding company, with the prior approval of the FRB, may acquire an out-of-state bank. Banks in states that do not prohibit out-of-state mergers may merge with the approval of the appropriate federal bank regulatory agency. A national or state bank may establish a de novo branch out of state if such branching is expressly permitted by the other state. A federal savings association is generally permitted to open a de novo branch in any state. Outside the U.S., subject to certain requirements for prior FRB consent or notice, the Company may acquire banks and Citibank may establish branches subject to local laws and to U.S. laws prohibiting companies from doing business in certain countries. The Company's earnings and activities are affected by legislation, by actions of its regulators, and by local legislative and administrative bodies and decisions of courts in the foreign and domestic jurisdictions in which the Company and its subsidiaries conduct business. For example, these include limitations on the ability of certain subsidiaries to pay dividends to their intermediate holding companies and on the abilities of those holding companies to pay dividends to the Company (see Note 18 of Notes to Consolidated Financial Statements). It is the policy of the FRB that bank holding companies should pay cash dividends on common stock only out of income available over the past year and only if prospective earnings retention is consistent with the organization's expected future needs and financial condition. The policy provides that bank holding companies should not maintain a level of cash dividends that undermines the bank holding company's ability to serve as a source of strength to its banking subsidiaries. Various federal and state statutory provisions limit the amount of dividends that subsidiary banks and savings associations can pay to their holding companies without regulatory approval. In addition to these explicit limitations, the federal regulatory agencies are authorized to prohibit a banking subsidiary or bank holding company from engaging in an unsafe or unsound banking practice. Depending upon the circumstances, the agencies could take the position that paying a dividend would constitute an unsafe or unsound banking practice. Numerous other federal and state laws also affect the Company's earnings and activities including federal and state consumer protection laws. Legislation may be enacted or regulation imposed in the U.S. or its political subdivisions, or in any other jurisdiction in which the Company does business, to further regulate banking and financial services or to limit finance charges or other fees or charges earned in such activities. There can be no assurance whether any such legislation or regulation will place additional limitations on the Company's operations or adversely affect its earnings. There are various legal restrictions on the extent to which a bank holding company and certain of its nonbank subsidiaries can borrow or otherwise obtain credit from banking subsidiaries or engage in certain other transactions with or involving those banking subsidiaries. In general, these restrictions require that any such transactions must be on terms that would ordinarily be offered to unaffiliated entities and secured by designated amounts of specified collateral. Transactions between a banking subsidiary and the holding company or any nonbank subsidiary are limited to 10 percent of the banking 168
subsidiary's capital stock and surplus, and as to the holding company and all such nonbank subsidiaries in the aggregate, to 20 percent of the bank's capital stock and surplus. The Company's right to participate in the distribution of assets of any subsidiary upon the subsidiary's liquidation or reorganization will be subject to the prior claims of the subsidiary's creditors. In the event of a liquidation or other resolution of an insured depository institution, the claims of depositors and other general or subordinated creditors are entitled to a priority of payment over the claims of holders of any obligation of the institution to its stockholders, including any depository institution holding company (such as the Company) or any stockholder or creditor thereof. In the liquidation or other resolution of a failed U.S. insured depository institution, deposits in U.S. offices and certain claims for administrative expenses and employee compensation are afforded a priority over other general unsecured claims, including deposits in offices outside the U.S., non-deposit claims in all offices, and claims of a parent such as the Company. Such priority creditors would include the FDIC, which succeeds to the position of insured depositors. A financial institution insured by the FDIC that is under common control with a failed or failing FDIC-insured institution can be required to indemnify the FDIC for losses resulting from the insolvency of the failed institution, even if this causes the affiliated institution also to become insolvent. Any obligations or liability owed by a subsidiary depository institution to its parent company is subordinate to the subsidiary's cross-guarantee liability with respect to commonly controlled insured depository institutions and to the rights of depositors. Under FRB policy, a bank holding company is expected to act as a source of financial strength to each of its banking subsidiaries and commit resources to their support. As a result of that policy, the Company may be required to commit resources to its subsidiary banks in certain circumstances. However, under the GLB Act, the FRB is not able to compel a bank holding company to remove capital from its regulated securities or insurance subsidiaries in order to commit such resources to its subsidiary banks. The Company and its U.S. insured depository institution subsidiaries are subject to risk-based capital and leverage guidelines issued by U.S. regulators for banks, savings associations, and bank holding companies. The regulatory agencies are required by law to take specific prompt actions with respect to institutions that do not meet minimum capital standards and have defined five capital tiers, the highest of which is "well-capitalized." As of December 31, 2000, the Company's bank and thrift subsidiaries, including Citibank, were "well capitalized." See "Management's Discussion and Analysis of Financial Condition and Results of Operations" for capital analysis. A bank is not required to repay a deposit at a branch outside the U.S. if the branch cannot repay the deposit due to an act of war, civil strife, or action taken by the government in the host country, unless the bank has expressly agreed in writing to do so. The GLB Act included the most extensive consumer privacy provisions ever enacted by Congress. These provisions, among other things, require full disclosure of the Company's privacy policy to consumers and mandate offering the consumer the ability to "opt out" of having non-public customer information disclosed to third parties. Pursuant to these provisions, the federal banking regulators have adopted privacy regulations. In addition, the states are permitted to adopt more extensive privacy protections through legislation or regulation. There can be no assurance whether any such legislation or regulation will place additional limitations on the Company's operations or adversely affect its earnings. The preceding statement is a forward-looking statement within the meaning of the Private Securities Litigation Reform Act. See "Forward-Looking Statements" on page 59. The earnings of the Company, Citibank, and their subsidiaries and affiliates are affected by general economic conditions and the conduct of monetary and fiscal policy by the U.S. government and by governments in other countries in which they do business. 169
Legislation is from time to time introduced in Congress that may change banking statutes and the operating environment of the Company and its banking subsidiaries in substantial and unpredictable ways. The Company cannot determine whether any such proposed legislation will be enacted, and if enacted, the ultimate effect that any such potential legislation or implementing regulations would have upon the financial condition or results of operations of the Company or its subsidiaries. INSURANCE--STATE REGULATION The Company's insurance subsidiaries are subject to regulation in the various states and jurisdictions in which they transact business. The regulation, supervision and administration relate, among other things, to the standards of solvency that must be met and maintained, the licensing of insurers and their agents, the lines of insurance in which they may engage, the nature of and limitations on investments, premium rates, restrictions on the size of risks that may be insured under a single policy, reserves and provisions for unearned premiums, losses and other obligations, deposits of securities for the benefit of policyholders, approval of policy forms and the regulation of market conduct including the use of credit information in underwriting as well as other underwriting and claims practices. In addition, many states have enacted variations of competitive rate-making laws which allow insurers to set certain premium rates for certain classes of insurance without having to obtain the prior approval of the state insurance department. State insurance departments also conduct periodic examinations of the affairs of insurance companies and require the filing of annual and other reports relating to the financial condition of companies and other matters. Although the Company is not regulated as an insurance company, it is the owner, through various holding company subsidiaries, of the capital stock of its insurance subsidiaries and as such is subject to state insurance holding company statutes, as well as certain other laws, of each of the states of domicile of its insurance subsidiaries. All holding company statutes, as well as certain other laws, require disclosure and, in some instances, prior approval of material transactions between an insurance company and an affiliate. The Company's insurance subsidiaries are subject to various state statutory and regulatory restrictions in each company's state of domicile, which limit the amount of dividends or distributions by an insurance company to its stockholders. See Note 18 of Notes to Consolidated Financial Statements. The Company's property and casualty insurance subsidiaries are also required to participate in various involuntary assigned risk pools, principally involving workers' compensation and automobile insurance, which provide various insurance coverages to individuals or other entities that otherwise are unable to purchase such coverage in the voluntary market. Participation in these pools in most states is generally in proportion to voluntary writings of related lines of business in that state. Many state insurance regulatory laws intended primarily for the protection of policyholders contain provisions that require advance approval by state agencies of any change in control of an insurance company that is domiciled (or, in some cases, having such substantial business that it is deemed to be commercially domiciled) in that state. "Control" is generally presumed to exist through the ownership of 10% or more of the voting securities of a domestic insurance company or of any company that controls a domestic insurance company. In addition, many state insurance regulatory laws contain provisions that require prenotification to state agencies of a change in control of a nondomestic admitted insurance company in that state. Such requirements may deter, delay or prevent certain transactions affecting the control of or the ownership of the Company's common stock, including transactions that could be advantageous to the stockholders of the Company. 170
SECURITIES REGULATION Certain U.S. and non-U.S. subsidiaries are subject to various securities and commodities regulations and capital adequacy requirements promulgated by the regulatory and exchange authorities of the jurisdictions in which they operate. The Company's registered broker-dealer subsidiaries are subject to the Securities and Exchange Commission's (the SEC) net capital rule, Rule 15c3-1 (the Net Capital Rule), promulgated under the Exchange Act. The Net Capital Rule requires the maintenance of minimum net capital, as defined. The Net Capital Rule also limits the ability of broker-dealers to transfer large amounts of capital to parent companies and other affiliates. Compliance with the Net Capital Rule could limit those operations of the Company that require the intensive use of capital, such as underwriting and trading activities and the financing of customer account balances, and also could restrict Salomon Smith Barney Holdings Inc.'s ability to withdraw capital from its broker-dealer subsidiaries, which in turn could limit Salomon Smith Barney Holdings Inc.'s ability to pay dividends and make payments on its debt. See Notes 12 and 18 of Notes to Consolidated Financial Statements. Certain of the Company's broker- dealer subsidiaries are also subject to regulation in the countries outside of the U.S. in which they do business. Such regulations include requirements to maintain specified levels of net capital or its equivalent. The Company is the indirect parent of investment advisers registered and regulated under the Investment Advisers Act of 1940 who provide investment advice to investment companies subject to regulation under the Investment Company Act of 1940. Under these Acts, advisory contracts between the Company's investment adviser subsidiaries and these investment companies (Affiliated Funds) would automatically terminate upon an assignment of such contracts by the investment adviser. Such an assignment would be presumed to have occurred if any party were to acquire more than 25% of the Company's voting securities. In that event, consent to the assignment from the shareholders of the Affiliated Funds involved would be needed for the advisory relationship to continue. In addition, subsidiaries of the Company and the Affiliated Funds are subject to certain restrictions in their dealings with each other. COMPETITION The Company and its subsidiaries are subject to intense competition in all aspects of their businesses from both bank and non-bank institutions that provide financial services and, in some of their activities, from government agencies. GENERAL BUSINESS FACTORS In the judgment of the Company, no material part of the business of the Company and its subsidiaries is dependent upon a single customer or group of customers, the loss of any one of which would have a materially adverse effect on the Company, and no one customer or group of affiliated customers accounts for as much as 10% of the Company's consolidated revenues. At December 31, 2000, the Company had approximately 138,000 full-time and 9,000 part-time employees in the United States and approximately 95,000 employees outside of the United States. PROPERTIES The Company's executive offices are located at 399 Park Avenue, New York, New York. 399 Park Avenue is a 39-story office building of which two-thirds is presently owned by Citibank and is occupied by the Company and certain of its subsidiaries, including the principal offices of Citicorp and Citibank. Citibank has entered into a contract to purchase the balance of 399 Park Avenue, in exchange for its 171
ownership interest in Citigroup Center. The exchange is scheduled to close before the end of the first quarter 2001. Citibank currently owns one-third of Citigroup Center, a 59-story multi-use complex located at 153 East 53rd Street, New York, New York. The Company and certain of its subsidiaries occupy this office space in Citigroup Center and will, after the exchange described above, continue to occupy it under a long-term lease. Citibank owns a building in Long Island City, New York and leases a building located at 111 Wall Street in New York City, which are totally occupied by the Company and certain of its subsidiaries. The Company's property-casualty insurance subsidiaries lease 180 field offices throughout the United States. The principal offices of TIC, TLAC, and TPC are located in Hartford, Connecticut. All of such occupied space is owned by TIC. TPC also rents space from Aetna Services, Inc. at CityPlace, located in Hartford, Connecticut. The Company's life insurance subsidiaries lease office space at approximately 20 locations throughout the United States. TIC and/or The Travelers Insurance Group Inc. lease two other buildings in Hartford, Connecticut, most of which is subleased to third parties. TIC also owns a building in Norcross, Georgia that is occupied by its information systems department. Salomon Smith Barney leases two buildings located at 388 and 390 Greenwich Street in New York City. These leases, which expire in 2003, include a purchase option with respect to the related properties. The principal offices of Salomon Smith Barney are located at 388 Greenwich Street, New York, New York. Additionally, Salomon Smith Barney leases space at 7 World Trade Center. Associates maintains its principal offices in Irving, Texas, in facilities which are, in part, owned and, in part, leased by it. Associates has office and branch sites for its business units throughout the United States, Canada, Asia (Japan, Taiwan, Philippines and Hong Kong), Europe and Latin America. The majority of these sites are leased, and, although numerous, none is material to Associates' operations. Other offices and certain warehouse space are owned, none of which is material to the Company's financial condition or operations. The Company believes its properties are adequate and suitable for its business as presently conducted and are adequately maintained. For further information concerning leases, see Note 26 of Notes to Consolidated Financial Statements. LEGAL PROCEEDINGS In the ordinary course of business, Citigroup and its subsidiaries are defendants or co-defendants in various litigation matters incidental to and typical of the businesses in which they are engaged. These include civil actions, arbitration proceedings and other matters in which the Company's broker-dealer subsidiaries have been named, arising in the normal course of business out of activities as a broker and dealer in securities, as an underwriter of securities, as an investment banker or otherwise. These also include numerous matters in which the Company's insurance subsidiaries are named, arising in the normal course of their business. In the opinion of the Company's management, the ultimate resolution of these legal proceedings would not be likely to have a material adverse effect on the results of the Company and its subsidiaries' operations, financial condition, or liquidity. 172
EXECUTIVE OFFICERS The following information with respect to each executive officer of Citigroup is set forth below as of March 9, 2001: name, age and the position held with Citigroup. <TABLE> <CAPTION> NAME AGE POSITION AND OFFICE HELD - ---- -------- ------------------------------------------ <S> <C> <C> Hamid Biglari............................. 42 Head of Corporate Strategy Sir Winfried F.W. Bischoff................ 59 Chairman, Citigroup Europe Michael A. Carpenter...................... 53 Chairman & CEO, Salomon Smith Barney; Head, Citibank's Global Relationship Bank Robert Druskin............................ 53 Chief Operations and Technology Officer Ahmed Fahour.............................. 34 Head of Corporate Development Jay S. Fishman............................ 48 Chief Operating Officer, Finance & Risk; CEO, Travelers Insurance Michael B.G. Froman....................... 38 Executive Director, Strategic Priorities & Business Development, Emerging Markets Roy A. Guthrie............................ 47 CEO, CitiCapital and Head of International Finance Thomas W. Jones........................... 51 Chairman & CEO, Global Investment Management & Private Banking Group; Co- Chairman & CEO, Citigroup Asset Management Marjorie Magner........................... 51 Senior Executive Vice President and Chief Administrative Officer, Global Consumer Deryck C. Maughan......................... 53 Vice Chairman; Chairman, Internet Operating Group; Head, Citigroup Mergers & Acquisitions Victor J. Menezes......................... 51 Chairman & CEO, Citibank, N.A. Charles O. Prince, III.................... 51 Chief Operating Officer, Operations & Administration; General Counsel & Corporate Secretary William R. Rhodes......................... 65 Vice Chairman Robert E. Rubin........................... 62 Director; Chairman of the Executive Committee; Member of the Office of the Chairman Petros K. Sabatacakis..................... 54 Senior Risk Officer Todd S. Thomson........................... 40 Chief Financial Officer Sanford I. Weill.......................... 67 Chairman & CEO Robert B. Willumstad...................... 55 Chairman & CEO, Global Consumer Barbara A. Yastine........................ 41 Chief Financial Officer, Salomon Smith Barney & Citibank's Global Relationship Bank </TABLE> 173
Except as described below, each executive officer has been employed in such position or in other executive or management positions within the Company for at least five years. Mr. Biglari joined Citigroup in 2000 and, prior to that time, he was partner and co-head of the global investment banking consulting practice at McKinsey and Company. Sir Winfried Bischoff joined Citigroup in April 2000 upon the merger of J. Henry Schroder & Co. Ltd. with Salomon Smith Barney Holdings Inc. and, from 1995 until that time, he was Chairman and Group Chief Executive of J. Henry Schroder & Co. Ltd. Mr. Fahour joined Citigroup in 2000 and, prior to that time, he was a partner/ officer and head of Asia Pacific Corporate Development Practice at the Boston Consulting Group. Mr. Froman joined Citigroup in 1999 and, from December 1999 to January 2001, he was Chief of Staff of the Office of Chairman and Chief Operating Officer of the Internet Operating Group. From January 1997 to July 1999, Mr. Froman served as Chief of Staff of the Department of the Treasury of the United States. Previously, he served as Deputy Assistant Secretary of Eurasia and The Middle East of the Department of the Treasury of the United States. Mr. Guthrie joined Citigroup upon the acquisition of Associates in November 2000 and, from 1998 until that time, he was Senior Executive Vice President and a director of Associates. From 1996 to 2000, Mr. Guthrie served as Chief Financial Officer of Associates. Mr. Jones joined Citigroup in August 1997 and, prior to that time, he was Vice Chairman, President, Chief Operating Officer, and a director of the Teachers Insurance and Annuity Association--College Retirement Equities Fund. Mr. Rubin joined Citigroup in October 1999 and, prior to that time, served as Secretary of the Treasury of the United States from 1995 to 1999. Mr. Sabatacakis joined Citigroup in August 1999 and, prior to that time, was Senior Vice President- Financial Services for American International Group. Previously, he was senior risk manager and head of Global Treasury and Capital Markets at Chemical Bank. Mr. Thomson joined Citigroup in July 1998 and, prior to that time, was Senior Vice President, Strategic Planning and Business Development for GE Capital Services. Previously, Mr. Thomson held management positions at Barents Group LLC and Bain and Company. 174
10-K CROSS-REFERENCE INDEX This Annual Report and Form 10-K incorporate into a single document the requirements of the accounting profession and the Securities and Exchange Commission, including a comprehensive explanation of 2000 results. FORM 10-K <TABLE> <CAPTION> ITEM NUMBER PAGE - ------ -------------------- <C> <S> <C> PART I 1. BUSINESS.................................................... 1-5, 8-75, 162-171 2. PROPERTIES.................................................. 171 3. LEGAL PROCEEDINGS........................................... 172 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS......... NOT APPLICABLE PART II 5. MARKET FOR REGISTRANT'S COMMON EQUITY AND RELATED STOCKHOLDER MATTERS......................................... 148, 177-178 6. SELECTED FINANCIAL DATA..................................... 6 7. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS................................... 8-75 7A. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET 60-67, 95-110, RISK........................................................ 134-144 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA................. 77-165 9. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND FINANCIAL DISCLOSURE.................................... NOT APPLICABLE PART III 10. DIRECTORS AND EXECUTIVE OFFICERS OF THE REGISTRANT.......... 173* 11. EXECUTIVE COMPENSATION...................................... ** 12. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT.................................................. *** 13. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS.............. **** PART IV 14. EXHIBITS, FINANCIAL STATEMENT SCHEDULES, AND REPORTS ON FORM 8-K......................................................... 176 </TABLE> - ------------------------ * For information regarding Citigroup Directors, see the material under the caption "Election of Directors" in the definitive Proxy Statement for Citigroup's Annual Meeting of Stockholders to be held on April 17, 2001, filed with the SEC (the "Proxy Statement"), incorporated herein by reference. ** See the material under the captions "Executive Compensation" and "How We Have Done" in the Proxy Statement, incorporated herein by reference. *** See the material under the captions "About the Annual Meeting" and "Stock Ownership" in the Proxy Statement, incorporated herein by reference. **** See the material under the captions "Election of Directors" and "Executive Compensation" in the Proxy Statement, incorporated herein by reference. None of the foregoing incorporation by reference shall include the information referred to in Item 402(a)(8) of Regulation S-K. 175
EXHIBITS, FINANCIAL STATEMENT SCHEDULES, AND REPORTS ON FORM 8-K The following exhibits are either filed herewith or have been previously filed with the Securities and Exchange Commission and are filed herewith by incorporation by reference: - Citigroup's Restated Certificate of Incorporation, as amended, - Citigroup's By-Laws, - Instruments Defining the Rights of Security Holders, Including Indentures, - Material Contracts, including certain compensatory plans available only to officers and/or directors, - Statements re Computation of Ratios, - Subsidiaries of the Registrant, - Consents of Experts and Counsel, - Powers of Attorney of Directors Armstrong, Belda, Bialkin, Derr, Deutch, Hughes, Jordan, Lipp, Mark, Masin, Mecum, Parsons, Pearson, Rubin, Thomas, and Zankel. A more detailed exhibit index has been filed with the SEC. Stockholders may obtain copies of that index, or any of the documents on that index by writing to Citigroup, Corporate Governance, 425 Park Avenue, 2nd Floor, New York, New York 10043 or on the Internet at http://www.sec.gov. Financial Statements filed for Citigroup Inc. and Subsidiaries: Consolidated Statement of Income Consolidated Statement of Financial Position Consolidated Statement of Changes in Stockholders' Equity Consolidated Statement of Cash Flows On October 11, 2000, the Company filed a Current Report on Form 8-K, dated October 3, 2000, filing as exhibits under Item 7 thereof the Terms Agreement, dated October 3, 2000, and the Form of Note relating to the offer and sale of the Company's 7.250% Subordinated Notes due October 1, 2010. On October 19, 2000, the Company filed a Current Report on Form 8-K, dated October 17, 2000, reporting under Item 5 thereof the results of its operations for the quarter ended September 30, 2000, and certain other selected financial data. On December 4, 2000, the Company filed a Current Report on Form 8-K, dated November 30, 2000, reporting under Item 5 thereof that the Company and Associates had announced the completion of the Company's acquisition of Associates. On December 5, 2000, the Company filed a Current Report on Form 8-K, dated November 30, 2000, filing as exhibits under Item 7 thereof (a) the Terms Agreement, dated November 30, 2000, and the Form of Note relating to the offer and sale of the Company's 7.250% Subordinated Notes due October 1, 2010, (b) the Terms Agreement, dated November 30, 2000, and the Form of Note relating to the offer and sale of the Company's 6.45% Notes due December 6, 2002 and (c) the Terms Agreement, dated November 30, 2000, and the Form of Note relating to the offer and sale of the Company's 6.75% Notes due December 1, 2005. On December 18, 2000, the Company filed a Current Report on Form 8-K, dated December 14, 2000, filing as an exhibit under Item 7 thereof the Distribution Agreement, dated December 14, 2000, relating to the offer and sale of the Company's Medium-Term Senior Notes, Series D, Due Nine Months or More from Date of Issue and Medium-Term Subordinated Notes, Series D, Due Nine Months or More from Date of Issue. 176
No other reports on Form 8-K were filed during the 2000 fourth quarter; however, on January 12, 2001, the Company filed a Current Report on Form 8-K, dated January 8, 2001, filing as exhibits under Item 7 thereof (a) the Terms Agreement, dated January 8, 2001, and the Form of Note relating to the offer and sale of the Company's 6.75% Notes due December 1, 2005 and (b) the Terms Agreement, dated January 8, 2001, and the Form of Note relating to the offer and sale of the Company's 6.50% Notes due January 18, 2011. On January 18, 2001, the Company filed a Current Report on Form 8-K, dated January 16, 2001, reporting under Item 5 thereof the results of its operations for the quarter and year ended December 31, 2000, and certain other selected financial data. On February 7, 2001, the Company filed a Current Report on Form 8-K, dated February 2, 2001, filing as exhibits under Item 7 thereof the Terms Agreement, dated February 2, 2001, and the Form of Note relating to the offer and sale of the Company's 5.70% Notes due February 6, 2004. Securities and Exchange Commission Washington, DC 20549 Form 10-K Annual Report pursuant to Section 13 or 15(d) of the Securities Exchange Act of 1934 for the fiscal year ended December 31, 2000 Commission File Number 1-9924 Citigroup Inc. Incorporated in the State of Delaware IRS Employer Identification Number: 52-1568099 Address: 399 Park Avenue New York, New York 10043 Telephone: (212) 559-1000 STOCKHOLDER INFORMATION Citigroup common stock is listed on the New York Stock Exchange and the Pacific Exchange under the ticker symbol "C." Citigroup Preferred Stock Series F, G, H, K, M, Q, R, and U are also listed on the New York Stock Exchange. ANNUAL MEETING The annual meeting will be held at 9:00 a.m. on April 17, 2001, at Carnegie Hall, 881 Seventh Avenue, New York, NY. TRANSFER AGENT Stockholder address changes and inquiries regarding stock transfers, dividend replacement, 1099-DIV reporting, and lost securities for common and preferred stocks should be directed to: Citibank Shareholder Services P. O. Box 2502 Jersey City, NJ 07303-2502 Telephone No. (201) 536-8057 Toll-free No. (888) 250-3985 Facsimile No. (201) 324-3284 E-mail address: Citibank@em.fcnbd.com 177
EXCHANGE AGENT Holders of Associates First Capital Corporation, Citicorp, Salomon Inc or the Travelers Corporation common stock, Citigroup Inc. Preferred Stock Series J, S, or T, Salomon Inc Preferred Stock Series E or D, or Travelers Group Preferred Stock Series A or D should arrange to exchange their certificates by contacting: Citibank Shareholder Services P. O. Box 2502 Jersey City, NJ 07303-2502 Telephone No. (201) 536-8057 Toll-free No. (888) 250-3985 Facsimile No. (201) 324-3284 E-mail address: Citibank@em.fcnbd.com The 2000 Forms 10-K filed with the Securities and Exchange Commission for the Company and certain subsidiaries, as well as Annual and Quarterly reports, are available from Citigroup Document Services toll free at (877) 936-2737 (outside the United States at (718) 765-6460) or by writing to: Citigroup Document Services 140 58th Street, Suite 5I Brooklyn, NY 11220 Copies of this annual report and other Citigroup financial reports can be viewed or retrieved on the Internet at http://www.citigroup.com or http://www.sec.gov. SECURITIES REGISTERED PURSUANT TO SECTION 12(b) AND (g) OF THE ACT A list of Citigroup securities registered pursuant to Section 12(b) and (g) of the Securities Exchange Act of 1934 is available from Citigroup Corporate Governance, 425 Park Avenue, 2nd Floor, New York, New York 10043 or on the Internet at http://www.sec.gov. As of February 5, 2001, Citigroup had 5,035,506,298 shares of common stock outstanding. As of February 5, 2001, Citigroup had approximately 250,300 common stockholders of record. This figure does not represent the actual number of beneficial owners of common stock because shares are frequently held in "street name" by securities dealers and others for the benefit of individual owners who may vote the shares. Citigroup (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days. Disclosure of delinquent filers pursuant to Item 405 of Regulation S-K is not contained herein nor in Citigroup's 2001 Proxy Statement incorporated by reference in Part III of this Form 10-K. The aggregate market value of Citigroup common stock held by non-affiliates of Citigroup on February 5, 2001 was approximately $283 billion. Certain information has been incorporated by reference as described herein into Part III of this annual report from Citigroup's 2001 Proxy Statement. 178
SIGNATURES Pursuant to the requirements of Section 13 or 15(d) of the Securities Exchange Act of 1934, the registrant has duly caused this report to be signed on its behalf by the undersigned, thereunto duly authorized, on the 14th day of March, 2001. CITIGROUP INC. (REGISTRANT) [/S/ TODD S. THOMSON] Todd S. Thomson Chief Financial Officer Pursuant to the requirements of the Securities Exchange Act of 1934, this report has been signed by the following persons on behalf of the registrant and in the capacities indicated on the 14th day of March, 2001. <TABLE> <S> <C> <C> Citigroup's Principal Executive Officer: [/S/ SANFORD I. WEILL] Sanford I. Weill Citigroup's Principal Financial Officer: [/S/ TODD S. THOMSON] Todd S. Thomson Citigroup's Principal Accounting Officers: [/S/ IRWIN R. ETTINGER] [/S/ ROGER W. TRUPIN] Irwin R. Ettinger Roger W. Trupin </TABLE> The Directors of Citigroup (listed below) executed a power of attorney appointing Todd S. Thomson their attorney-in-fact, empowering him to sign this report on their behalf. <TABLE> <S> <C> C. Michael Armstrong Reuben Mark Alain J.P. Belda Michael T. Masin Kenneth J. Bialkin Dudley C. Mecum Kenneth T. Derr Richard D. Parsons John M. Deutch Andrall E. Pearson Keith W. Hughes Robert E. Rubin Ann Dibble Jordan Franklin A. Thomas Robert I. Lipp Arthur Zankel </TABLE> /s/ Todd S. Thomson Todd S. Thomson, attorney-in-fact 179
CITIGROUP BOARD OF DIRECTORS <TABLE> <S> <C> <C> <C> C. MICHAEL ARMSTRONG KEITH W. HUGHES DUDLEY C. MECUM FRANKLIN A. THOMAS Chairman and Chief Director Managing Director Former President Executive Officer Citigroup Inc. Capricorn Holdings, LLC The Ford Foundation AT&T Corp. ALAIN J.P. BELDA ANN DIBBLE JORDAN RICHARD D. PARSONS SANFORD I. WEILL Chairman of the Board Consultant Co-Chief Operating Chairman and Chief and Chief Executive Officer Executive Officer Officer AOL Time Warner Inc. Citigroup Inc. Alcoa Inc. KENNETH J. BIALKIN ROBERT I. LIPP ANDRALL E. PEARSON ARTHUR ZANKEL Partner Chairman of the Board Founding Chairman General Partner Skadden, Arps, Slate, Travelers Property Tricon Global Zankel Capital Advisors, Meagher & Flom LLP Casualty Corp. Restaurants, Inc. LLC KENNETH T. DERR REUBEN MARK ROBERT E. RUBIN HONORARY DIRECTOR Chairman of the Board, Chairman and Chief Director; Chairman of THE HONORABLE Retired Executive Officer the Executive Committee; GERALD R. FORD Chevron Corporation Colgate-Palmolive Member of the Office of Former President of the Company the Chairman United States Citigroup Inc. JOHN M. DEUTCH MICHAEL T. MASIN Institute Professor Vice Chairman and Massachusetts Institute President of Technology Verizon Communications Inc. </TABLE> 180
EXHIBIT INDEX <TABLE> <CAPTION> EXHIBIT NUMBER DESCRIPTION OF EXHIBIT - --------------------- ---------------------- <C> <S> 3.01.1 Restated Certificate of Incorporation of Citigroup Inc. (the "Company"), incorporated by reference to Exhibit 4.01 to the Company's Registration Statement on Form S-3 filed December 15, 1998 (No. 333-68949). 3.01.2 Certificate of Designation of 5.321% Cumulative Preferred Stock, Series YY, of the Company, incorporated by reference to Exhibit 4.45 to Amendment No. 1 to the Company's Registration Statement on Form S-3 filed January 22, 1999 (No. 333-68949). 3.01.3 Certificate of Amendment to the Restated Certificate of Incorporation of the Company dated April 18, 2000, incorporated by reference to Exhibit 3.01.3 to the Company's Quarterly Report on Form 10-Q for the fiscal quarter ended March 31, 2000 (File No. 1-9924). 3.02 By-Laws of the Company, as amended, effective October 26, 1999, incorporated by reference to Exhibit 3.02 to the Company's Quarterly Report on Form 10-Q for the fiscal quarter ended September 30, 1999 (File No. 1-9924). 10.01* Employment Protection Agreement, dated as of December 31, 1987, between the Company (as successor to Commercial Credit Company ("CCC")) and Sanford I. Weill, incorporated by reference to Exhibit 10.03 to CCC's Annual Report on Form 10-K for the fiscal year ended December 31, 1987 (File No. 1-6594). 10.02.1* Travelers Group Stock Option Plan (as amended and restated as of April 24, 1996), incorporated by reference to Exhibit 10.02.1 to the Company's Annual Report on Form 10-K for the fiscal year ended December 31, 1996 (File No. 1-9924). 10.02.2* Amendment No. 14 to the Travelers Group Stock Option Plan, incorporated by reference to Exhibit 10.01 to the Company's Quarterly Report on Form 10-Q for the fiscal quarter ended September 30, 1996 (File No. 1-9924). 10.02.3* Amendment No. 15 to the Travelers Group Stock Option Plan (effective July 23, 1997), incorporated by reference to Exhibit 10.04 to the Company's Quarterly Report on Form 10-Q for the fiscal quarter ended September 30, 1997 (File No. 1-9924) (the "Company's September 30, 1997 10-Q"). 10.02.4* Amendment No. 16 to the Travelers Group Stock Option Plan, incorporated by reference to Exhibit 10.02.4 to the Company's Annual Report on Form 10-K for the fiscal year ended December 31, 1999 (File No. 1-9924) (the "Company's 1999 10-K"). 10.03.1* Travelers Group 1996 Stock Incentive Plan (as amended through July 23, 1997), incorporated by reference to Exhibit 10.03 to the Company's September 30, 1997 10-Q. 10.03.2* Amendment to Travelers Group 1996 Stock Incentive Plan (as amended through July 23, 1997), incorporated by reference to Exhibit 10.03.2 to the Company's 1999 10-K. 10.04* Travelers Group Inc. Retirement Benefit Equalization Plan (as amended and restated as of January 2, 1996), incorporated by reference to Exhibit 10.04 to the Company's Annual Report on Form 10-K for the fiscal year ended December 31, 1998 (File No. 1-9924) (the "Company's 1998 10-K"). 10.05* Citigroup Inc. Amended and Restated Compensation Plan for Non-Employee Directors (as of October 20, 1998), incorporated by reference to Exhibit 10.05 to the Company's 1998 10-K. </TABLE>
<TABLE> <CAPTION> EXHIBIT NUMBER DESCRIPTION OF EXHIBIT - --------------------- ---------------------- <C> <S> 10.06.1* Supplemental Retirement Plan of the Company, incorporated by reference to Exhibit 10.23 to the Company's Annual Report on Form 10-K for the fiscal year ended December 31, 1990 (File No. 1-9924). 10.06.2* Amendment to the Company's Supplemental Retirement Plan, incorporated by reference to Exhibit 10.06.2 to the Company's Annual Report on Form 10-K for the fiscal year ended December 31, 1993 (File No. 1-9924). 10.07* Citigroup 1999 Executive Performance Plan (effective January 1, 1999), incorporated by reference to Annex B to the Company's Proxy Statement dated March 8, 1999 (File No. 1-9924). 10.08.1* Travelers Group Capital Accumulation Plan (as amended through July 23, 1997), incorporated by reference to Exhibit 10.02 to the Company's September 30, 1997 10-Q. 10.08.2* Amendment to the Travelers Group Capital Accumulation Plan (as amended through July 23, 1997), incorporated by reference to Exhibit 10.08.2 to the Company's 1999 10-K. 10.09* The Travelers Inc. Deferred Compensation and Partnership Participation Plan, incorporated by reference to Exhibit 10.31 to the Company's Annual Report on Form 10-K/A-1 for the fiscal year ended December 31, 1994 (File No. 1-9924). 10.10* The Travelers Insurance Deferred Compensation Plan (formerly The Travelers Corporation TESIP Restoration and Non-Qualified Savings Plan) (as amended through December 10, 1998), incorporated by reference to Exhibit 10.10 to the Company's 1998 10-K. 10.11* The Travelers Corporation Directors' Deferred Compensation Plan (as amended November 7, 1986), incorporated by reference to Exhibit 10(d) to the Annual Report on Form 10-K of The Travelers Corporation for the fiscal year ended December 31, 1986 (File No. 1-5799). 10.12.1* Travelers Property Casualty Corp. Capital Accumulation Plan (as amended through July 23, 1997), incorporated by reference to Exhibit 10.01 to the Quarterly Report on Form 10-Q of Travelers Property Casualty Corp. for the fiscal quarter ended September 30, 1997 (File No. 1-14328). 10.12.2* Amendment to the Travelers Property Casualty Corp. Capital Accumulation Plan (as amended through July 23, 1997), incorporated by reference to Exhibit 10.12.2 to the Company's 1999 10-K. 10.13* Letter Agreement, dated as of August 14, 1997, between the Company and Thomas W. Jones, incorporated by reference to Exhibit 10.01 to the Company's September 30, 1997 10-Q. 10.14.1* Salomon Inc Equity Partnership Plan for Key Employees (as amended through March 25, 1998), incorporated by reference to Exhibit 10.19 to the Company's Annual Report on Form 10-K for the fiscal year ended December 31, 1997 (File No. 1-9924). 10.14.2* Amendment to the Salomon Inc Equity Partnership Plan for Key Employees (as amended through March 25, 1998), incorporated by reference to Exhibit 10.14.2 to the Company's 1999 10-K. 10.15.1* Citicorp Executive Incentive Compensation Plan, incorporated by reference to Citicorp's Registration Statement on Form S-8 filed April 25, 1988 (No. 2-47648). 10.15.2* Amendment to the Citicorp Executive Incentive Compensation Plan, incorporated by reference to Exhibit 10.15.2 to the Company's 1999 10-K. 10.16.1* Citicorp 1988 Stock Incentive Plan, incorporated by reference to Exhibit 4 to Citicorp's Registration Statement on Form S-8 filed April 25, 1988 (No. 2-47648). </TABLE>
<TABLE> <CAPTION> EXHIBIT NUMBER DESCRIPTION OF EXHIBIT - --------------------- ---------------------- <C> <S> 10.16.2* Amendment to the Citicorp 1988 Stock Incentive Plan, incorporated by reference to Exhibit 10.16.2 to the Company's 1999 10-K. 10.17* 1994 Citicorp Annual Incentive Plan for Selected Executive Officers, incorporated by reference to Exhibit 10 to Citicorp's Quarterly Report on Form 10-Q for the fiscal quarter ended March 31, 1994 (File No. 1-5378). 10.18.1* Citicorp Deferred Compensation Plan, incorporated by reference to Exhibit 10 to Citicorp's Registration Statement on Form S-8 filed February 15, 1996 (No. 333-0983). 10.18.2* Amendment to the Citicorp Deferred Compensation Plan, incorporated by reference to Exhibit 10.18.2 to the Company's 1999 10-K. 10.19.1* Citicorp 1997 Stock Incentive Plan, incorporated by reference to Citicorp's 1997 Proxy Statement filed February 26, 1997 (File No. 1-5378). 10.19.2* Amendment to the Citicorp 1997 Stock Incentive Plan, incorporated by reference to Exhibit 10.19.2 to the Company's 1999 10-K. 10.20.1* Supplemental Executive Retirement Plan of Citicorp and Affiliates (as amended and restated effective January 1, 1998), incorporated by reference to Exhibit 10.20.1 to the Company's 1999 10-K. 10.20.2* First Amendment to the Supplemental Executive Retirement Plan of Citicorp and Affiliates (as amended and restated effective January 1, 1998), incorporated by reference to Exhibit 10.20.2 to the Company's 1999 10-K. 10.21.1* Supplemental ERISA Compensation Plan of Citibank, N.A. and Affiliates, as amended and restated, incorporated by reference to Exhibit 10.(G) to Citicorp's Annual Report on Form 10-K for the fiscal year ended December 31, 1997 (File No. 1-5378). 10.21.2* Amendment to the Supplemental ERISA Compensation Plan of Citibank, N.A. and Affiliates, as amended and restated, incorporated by reference to Exhibit 10.21.2 to the Company's 1999 10-K. 10.22* Supplemental ERISA Excess Plan of Citibank, N.A. and Affiliates, as amended and restated, incorporated by reference to Exhibit 10.(H) to Citicorp's Annual Report on Form 10-K for the fiscal year ended December 31, 1997 (File No. 1-5378). 10.23* Directors' Deferred Compensation Plan, Restated May 1, 1988, incorporated by reference to Exhibit 10.23 to the Company's 1998 10-K. 10.24* Letter Agreement, dated as of October 26, 1999, between the Company and Robert E. Rubin, incorporated by reference to Exhibit 10.24 to the Company's 1999 10-K. 10.25* Citigroup 1999 Stock Incentive Plan (effective April 30, 1999), incorporated by reference to Annex A to the Company's Proxy Statement dated March 8, 1999 (File No. 1-9924). 10.26*+ Form of Citigroup Directors' Stock Option Grant Notification. 10.27 Citigroup 2000 Stock Purchase Plan (effective May 1, 2000), incorporated by reference to Annex B to the Company's Proxy Statement dated March 17, 2000 (File No. 1-9924). 10.28* Associates First Capital Corporation Incentive Compensation Plan, incorporated by reference to Exhibit 10.8 to the Associates First Capital Corporation ("Associates") Annual Report on Form 10-K for the fiscal year ended December 31, 1997 (File No. 1-11637) (the "Associates' 1997 10-K"). 10.29* Associates First Capital Corporation Deferred Compensation Plan, incorporated by reference to Exhibit 4 to the registration statement on Form S-8 filed by Associates on March 31, 1998 (File No. 333-49049). </TABLE>
<TABLE> <CAPTION> EXHIBIT NUMBER DESCRIPTION OF EXHIBIT - --------------------- ---------------------- <C> <S> 10.30* Associates First Capital Corporation Excess Benefit Plan, incorporated by reference to Exhibit 10.17 to the registration statement on Form S-1 filed by Associates on February 9, 1996 (File No. 333-00817). 10.31* Associates First Capital Corporation Supplemental Retirement Income Plan, incorporated by reference to Exhibit 10.16 to the registration statement on Form S-1 filed by Associates on February 9, 1996 (File No. 333-00817). 10.32* Associates First Capital Corporation Long-Term Performance Plan, incorporated by reference to Exhibit 10.12 to the registration statement on Form S-1 filed by Associates on February 9, 1996 (File No. 333-00817). 10.33*+ Associates First Capital Corporation Supplemental Executive Welfare Plan. 10.34*+ Form of Restricted Stock Award Agreement issued under the Associates Incentive Compensation Plan. 10.35*+ Form of Associates Incentive Compensation Plan Stock Option Award Agreement-2000. 10.36*+ Letter Agreement, dated as of July 20, 2000, between the Company and John S. Reed. 10.37*+ Employment Agreement, dated as of October 30, 2000, as amended, between the Company and Keith Hughes. 10.38*+ Letter Agreement, dated as of December 19, 2000, between the Company and Robert I. Lipp. 12.01+ Calculation of Ratio of Income to Fixed Charges. 12.02+ Calculation of Ratio of Income to Fixed Charges Including Preferred Stock Dividends. 21.01+ Subsidiaries of the Company. 23.01+ Consent of KPMG LLP, Independent Auditors. 24.01+ Powers of Attorney. 99.01+ List of Securities Registered Pursuant to Section 12(b) of the Securities Exchange Act of 1934. </TABLE> - ------------------------ The total amount of securities authorized pursuant to any instrument defining rights of holders of long-term debt of the Company does not exceed 10% of the total assets of the Company and its consolidated subsidiaries. The Company will furnish copies of any such instrument to the SEC upon request. The financial statements required by Form 11-K for 2000 for the Company's employee savings plans will be filed as an exhibit by amendment to this Form 10-K pursuant to Rule 15d-21 of the Securities Exchange Act of 1934, as amended. Copies of any of the exhibits referred to above will be furnished at a cost of $0.25 per page (although no charge will be made for the 2000 Annual Report on Form 10-K) to security holders who make written request therefor to Corporate Governance, Citigroup Inc., 425 Park Avenue, 2nd Floor, New York, New York 10043. - ------------------------ * Denotes a management contract or compensatory plan or arrangement required to be filed as an exhibit pursuant to Item 14(c) of Form 10-K. + Filed herewith.